Question

In: Accounting

Schultz Inc. is deciding to automate either its Molding department or its Finishing department. Funds are...

Schultz Inc. is deciding to automate either its Molding department or its Finishing department. Funds are only available for one automation. You must decide which department will be automated. The original cost, net cash inflows, and hurdle rates are shown below for each project. Calculate the payback period, internal rate of return, and net present value for each project. Then decide which department you would choose to automate based on this information. Explain your answer. Calculations and explanations can be given on this worksheet.
Molding
Hurdle Rate: 14%
Original Cost: $       (845,000)
Net Cash Inflows:
Year 1 $        267,000
Year 2            245,000
Year 3            221,000
Year 4            215,000
Year 5            190,000
Year 6            168,000
Payback period:
Internal Rate of Return:
Net Present Value:    
   

Solutions

Expert Solution

Molding
Hurdle Rate: 14% Cumulative Cash flows PVIF at 14% PV at 14% PVIF at 15% PV at 15% PVIF at 16% PV at 16%
Original Cost: -845000 -845000 1 -845000 1 -845000 1 -845000
Net Cash Inflows:
Year 1 267000 -578000 0.87719 234211 0.86957 232174 0.86207 230172
Year 2 245000 -333000 0.76947 188520 0.75614 185255 0.74316 182075
Year 3 221000 -112000 0.67497 149169 0.65752 145311 0.64066 141585
Year 4 215000 103000 0.59208 127297 0.57175 122927 0.55229 118743
Year 5 190000 293000 0.51937 98680 0.49718 94464 0.47611 90461
Year 6 168000 461000 0.45559 76539 0.43233 72631 0.41044 68954
29415 7762 -13009
Payback period: = 3+112000/215000 = 3.52 Years
Internal Rate of Return: = 15+7762/(7762+13009)= 15.37%
Net Present Value: $29415
NOTE:
DETAILS FOR THE FINISHING DEPARTMENT NOT GIVEN.

Related Solutions

In December, Davis Company had the following cost flows: Molding Department Grinding Department Finishing Department Direct...
In December, Davis Company had the following cost flows: Molding Department Grinding Department Finishing Department Direct materials $112,200 $30,300 $17,800 Direct labor 8,500 14,000 12,000 Applied overhead 8,800 60,700 10,800 Transferred-in cost: From Molding 129,500 From Grinding 234,500 Total cost $129,500 $234,500 $275,100 Required: 1. Prepare the journal entries to transfer costs from (a) Molding to Grinding, (b) Grinding to Finishing, and (c) Finishing to Finished Goods. 2. CONCEPTUAL CONNECTION: Explain how the journal entries differ from a job-order cost...
If a publicly traded company needed funds to expand its business and was deciding between issuing...
If a publicly traded company needed funds to expand its business and was deciding between issuing more company stock versus selling corporate bonds, give an advantage and disadvantage of issuing more stock and an advantage and disadvantage of selling corporate bonds to raise the needed funds.
Jones Cleaning Supplies reports the following for March for its Finishing Department: UNITS Beginning Work-in-Process Inventory...
Jones Cleaning Supplies reports the following for March for its Finishing Department: UNITS Beginning Work-in-Process Inventory (20% complete for direct materials, 70% complete for conversion costs 4,000 units Transferred in from Mixing Department during March 14,000 units Completed and transferred out to Finished Goods inventory during March 15,000 units Ending Work-in-Process Inventory (30% complete for direct materials, 80% complete for conversion costs) 3,000 units COSTS Work-in-Process Inventory, August 31 (transferred in costs, $11,400; direct materials costs, $1,000; conversion costs, $1,800)...
Lansing, Inc., provided the following data for its two producing departments: Molding      Polishing      Total...
Lansing, Inc., provided the following data for its two producing departments: Molding      Polishing      Total Estimated overhead         $375,000         $80,000         $455,000 Direct labor hours (expected and actual):     Form A         1,000         5,000         6,000     Form B         4,000         15,000         19,000       Total         5,000         20,000         25,000 Machine hours:     Form A         3,600         3,000         6,600     Form B         1,400         2,000         3,400       Total         5,000         5,000         10,000 Machine hours...
Q8) Acme Inc. is deciding between leasing and purchasing machinery that is necessary for its operations....
Q8) Acme Inc. is deciding between leasing and purchasing machinery that is necessary for its operations. The lease is for 10 years with an annual cost of $100,000. The purchase price is $670,000. The purchased machinery would cost $15,000 per year to maintain and last 18 years. Acme's WACC is 8%. What is the equivalent annual annuity of the purchase option? Which option should Acme choose, lease or purchase? A) -$133,075.18; Purchase B) -$52,222.22; Purchase C) -$133,075.18; Lease D) -$86,490.40;...
Business Inc. produces all of its products in one department, The Production Department, and transfers the...
Business Inc. produces all of its products in one department, The Production Department, and transfers the costs to finished goods. The production department adds all direct materials at the beginning of the process. The inspection takes place at the end of the process and is considered abnormal spoilage. In March the department reported the following data: Beginning work in process as of March 1st 200 units 30% Complete Cost of Direct materials $500 Conversion costs $140 Costs added during March...
Business Inc. produces all of its products in one department, The Production Department, and transfers the...
Business Inc. produces all of its products in one department, The Production Department, and transfers the costs to finished goods. The production department adds all direct materials at the beginning of the process. Inspection takes place at the end of the process and is considered abnormal spoilage. In March the department reported the following data: Beginning work in process as of March 1st 200 units 30% Complete Cost of Direct materials $500 Conversion costs $140 Costs added during March Cost...
Sheridan Innovations, Inc. produces exercise and fitness gear. Two of its newer products require a finishing...
Sheridan Innovations, Inc. produces exercise and fitness gear. Two of its newer products require a finishing process that can only be completed on machines that were recently purchased for this purpose. The machines have a maximum capacity of 6,000 machine hours, and no other products that the company makes use these machines. Sarah Jacob, the company’s operations manager, is preparing the production schedule for the coming month and can’t seem to find enough machine time to produce enough units to...
Pharoah Innovations, Inc. produces exercise and fitness gear. Two of its newer products require a finishing...
Pharoah Innovations, Inc. produces exercise and fitness gear. Two of its newer products require a finishing process that can only be completed on machines that were recently purchased for this purpose. The machines have a maximum capacity of 10,500 machine hours, and no other products that the company makes use these machines. Sarah Jacob, the company’s operations manager, is preparing the production schedule for the coming month and can’t seem to find enough machine time to produce enough units to...
Warsaw Inc. assembles its product in several departments. Warsaw has two departments, Cutting and Finishing, that...
Warsaw Inc. assembles its product in several departments. Warsaw has two departments, Cutting and Finishing, that processes all units. Product is processed in Cutting, transferred to Finishing, and once complete, is transferred to finished goods. Information for the month of October is as follows: Beginning Work in Process Inventory for Cutting is $15,000 ($12,000 for materials and $3,000 for conversion costs) Beginning Work in Process Inventory for Finishing contains $16,000 for transferred-in costs, $40,000 for the first material, and $20,000...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT