Question
In: Finance
Scott Brothers Company (SBC) is contemplating the production of a new type of hand-held manufacturing device....
Scott Brothers Company (SBC) is contemplating the production of a new type of hand-held manufacturing device. A consultant was paid $15,000 last year to perform a feasibility study for this new device. The firm has an existing facility they can use for this potential project, but the facility can also be rented for $30,000 per year for the next 3 years by another company that is in negotiations concerning a lease. The new machinery needed for SBC’s new project has a purchase price of $600,000, an installation cost of $10,000, an estimated useful life of 3 years, and an estimated salvage value of $75,000 to be received at the end of the useful life of the machinery. The project is expected to provide an annual increase in net revenues of $180,000 to SBC. An additional $20,000 in inventory and an additional $12,000 in accounts payable will be required during the period of the project. The IRS categorizes this type of machinery as a MACRS 3-year class for depreciation purposes (percentage for years 1-4 are 33%, 45%, 15%, and 7%, respectively). The company is in the 40 percent federal-plus-state tax bracket, and it has a 12 percent discount rate.
- What is the initial net cash outflow (NICO) required if the new machine is installed? (2 pts)
- Compute all of the annual operating cash flows for this project. (4 pts)
- What is the end-of-project or terminal cash flow? You do not need to include the operating cash flow in this calculation. (3 pts)
- If the firms cost of capital was 8%, what would be the NPV of this project? Is it acceptable? (2 pts)
Solutions
jeff jeffy answered 1 year agoRelated Solutions
?The Templeton Manufacturing and Distribution Company of? Tacoma, Washington, is contemplating the purchase of a new...
?The Templeton Manufacturing and Distribution Company of?
Tacoma, Washington, is contemplating the purchase of a new conveyor
belt system for one of its regional distribution facilities. Both
alternatives will accomplish the same task but the Eclipse Model is
substantially more expensive than the Sabre Model and will not have
to be replaced for 10? years, whereas the cheaper model will need
to be replaced in just 5 years. The costs of purchasing the two
systems and the costs of operating...
The Templeton Manufacturing and Distribution Company of? Tacoma, Washington, is contemplating the purchase of a new...
The Templeton Manufacturing and Distribution Company of? Tacoma,
Washington, is contemplating the purchase of a new conveyor belt
system for one of its regional distribution facilities. Both
alternatives will accomplish the same task but the Eclipse Model is
substantially more expensive than the Sabre Model and will not have
to be replaced for 10? years, whereas the cheaper model will need
to be replaced in just 5 years. The costs of purchasing the two
systems and the costs of operating...
Sinclair Manufacturing and Boswell Brothers Inc. are both involved in the production of brick for the...
Sinclair Manufacturing and Boswell Brothers Inc. are both
involved in the production of brick for the homebuilding industry.
Their financial information is as follows:
Sinclair
Boswell
Capital
Structure
Debt @ 10%
$
1,920,000
0
Common stock, $10 per share
1,280,000
$
3,200,000
Total
$
3,200,000
$
3,200,000
Common shares
128,000
320,000
Operating
Plan:
Sales (72,000 units at $15
each)
$
1,080,000
$
1,080,000
Variable costs
864,000
432,000
Fixed costs
0
322,000
Earnings before interest and
taxes (EBIT)
$
216,000
$...
Sinclair Manufacturing and Boswell Brothers Inc. are both involved in the production of brick for the...
Sinclair Manufacturing and Boswell Brothers Inc. are both
involved in the production of brick for the homebuilding industry.
Their financial information is as follows: Sinclair Boswell Capital
Structure Debt @ 11% $ 1,080,000 0 Common stock, $10 per share
720,000 $ 1,800,000 Total $ 1,800,000 $ 1,800,000 Common shares
72,000 180,000 Operating Plan: Sales (58,000 units at $20 each) $
1,160,000 $ 1,160,000 Variable costs 928,000 580,000 Fixed costs 0
308,000 Earnings before interest and taxes (EBIT) $ 232,000 $...
Sinclair Manufacturing and Boswell Brothers Inc. are both involved in the production of brick for the...
Sinclair Manufacturing and Boswell Brothers Inc. are both
involved in the production of brick for the homebuilding industry.
Their financial information is as follows:
Sinclair
Boswell
Capital
Structure
Debt @ 10%
$
1,740,000
0
Common stock, $10 per share
1,160,000
$
2,900,000
Total
$
2,900,000
$
2,900,000
Common shares
116,000
290,000
Operating
Plan:
Sales (69,000 units at $15
each)
$
1,035,000
$
1,035,000
Variable costs
828,000
414,000
Fixed costs
0
319,000
Earnings before interest and
taxes (EBIT)
$
207,000
$...
Sinclair Manufacturing and Boswell Brothers Inc. are both involved in the production of tile for the...
Sinclair Manufacturing and Boswell Brothers Inc. are both
involved in the production of tile for the home-building industry.
Their financial information is as follows:
Capital Structure
Sinclair
Boswell
Debt @ 12%
$1,320,000
0
Common stock, $10 per share
880,000
$2,200,000
$2,200,000
$2,200,000
Common shares
88,000
220,000
Operating Plan
Sales (62,000 units at $25 each)
$1,550,000
$1,550,000
Less: Variable costs
1,116,000
744,000
($18 per unit)
($12 per unit) ...
Sinclair Manufacturing and Boswell Brothers Inc. are both involved in the production of brick for the...
Sinclair Manufacturing and Boswell Brothers Inc. are both
involved in the production of brick for the homebuilding industry.
Their financial information is as follows: Sinclair BoswellCapital
Structure Debt @ 10%$2,100,000 0Common
stock, $10 per share 1,400,000 $3,500,000Total$3,500,000
$3,500,000Common shares
140,000 350,000 Operating
Plan: Sales (75,000 units at $15
each)$1,125,000 $1,125,000Variable costs
900,000 450,000Fixed costs 0 325,000Earnings
before interest and taxes (EBIT)$225,000 $350,000 The variable
costs for Sinclair are $12 per unit compared to $6 per unit for
Boswell. a. If you combine Sinclair’s capital structure with
Boswell’s...
Sinclair Manufacturing and Boswell Brothers Inc. are both involved in the production of brick for the...
Sinclair Manufacturing and Boswell Brothers Inc. are both
involved in the production of brick for the homebuilding industry.
Their financial information is as follows:
Sinclair
Boswell
Capital Structure
Debt @ 12%
$
1,320,000
0
Common stock, $10 per share
880,000
$
2,200,000
Total
$
2,200,000
$
2,200,000
Common shares
88,000
220,000
Operating Plan:
Sales (62,000 units at $25 each)
$
1,550,000
$
1,550,000
Variable costs
1,116,000
744,000
Fixed costs
0
312,000
Earnings before interest and taxes (EBIT)
$
434,000
$...
Adams Manufacturing Company produces a component part of a top secret military communication device. Standard production...
Adams Manufacturing Company produces a component part of a top
secret military communication device. Standard production and cost
data for the part, Product X, follow:
Planned production
24,000
units
Per unit direct materials
3.30
pounds
@
$
1.60
per pound
Per unit direct labor
2.20
hours
@
$
7.30
per hour
Total estimated fixed overhead costs
$
547,200
Adams purchased and used 82,960 pounds of material at an average
cost of $1.65 per pound. Labor usage amounted to 50,780 hours...
Zachary Manufacturing Company produces a component part of a top secret military communication device. Standard production...
Zachary Manufacturing Company produces a component part of a top
secret military communication device. Standard production and cost
data for the part, Product X, follow:
Planned production
27,000
units
Per unit direct materials
1.90
pounds
@
$
2.10
per pound
Per unit direct labor
3.00
hours
@
$
8.90
per hour
Total estimated fixed overhead costs
$
610,200
Zachary purchased and used 53,840 pounds of material at an
average cost of $2.13 per pound. Labor usage amounted to 79,030
hours...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Can you explain to me the differnces in how we paid for the health care (access...
- Discuss proactive and defensive marketing in context to the company position in the hypothetical market structure...
- Write a java code that could be used to show the simulation of a tornado. use...
- A Canadian company issues an 8-year term bond with face value of $1,000 and 6% coupon...
- 1. Consider the following nuclides: &
- In general, teams can be described three ways. Name and define each.
- JAVASCRIPT: Please create an array of student names and another array of student grades. - Create...
ADVERTISEMENT