The Brisbane Manufacturing Company produces a single model of a CD player. Each

Question

The Brisbane Manufacturing Company produces a single model of a CD player. Each player is sold for $185 with a resulting contribution margin of $80. Brisbane's management is considering a change in its quality control system. Currently, Brisbane spends $39,500 a year to inspect the CD players. An average of 1,800 units turn out to be defective - 1,260 of them are detected in the inspection process and are repaired for $75. If a defective CD player is not identified in the inspection process, the customer who receives it is given a full refund of the purchase price. Competitors are expected to improve their quality control systems in the future, so if Brisbane does not improve its system, sales volume is expected to fall by 450 CD players a year for the next five years. In other words, it will fall by 450 units in the first year, 900 units in the second year, etc.. The proposed quality control system involves the purchase of an x-ray machine for $280,000. The machine would last for five years and would have salvage value at that time of $20,000. Brisbane would also spend $820,000 immediately to train workers to better detect and repair defective units. Annual inspection costs would increase by $24,000. This new control system would reduce the number of defective units to 380 per year. 325 of these defective units would be detected and repaired at a cost of $41 per unit. Customers who still received defective players would be given a refund equal to one-and-a-fourth times the purchase price.

Questions 1 & 2 [0 points; unlimited tries]

1. What is the Year 2 cash flow if Brisbane keeps using its current system? $-305,900 You are correct. Your receipt no. is 150-7389 Help: Receipt Previous Tries

2. What is the Year 2 cash flow if Brisbane replaces its current system? $-89,544 You are correct. Your receipt no. is 150-2245 Help: Receipt Previous Tries Questions

3 & 4 [5 points each; 5 tries each]

3. Assuming a discount rate of 6%, what is the net present value if Brisbane keeps using its current system? $-1,422,443 You are correct. Your receipt no. is 150-2061 Help: Receipt Previous Tries

4. Assuming a discount rate of 6%, what is the net present value if Brisbane replaces its current system?

I need help with #4. Just an answer. I have posted this 6 times, and every time it keeps saying that I need to post additonal information but I am copying and pasting the exact question. There are many questions that are posted exactly like mine with different numbers, so there is no reason it shoulnd't be able to be answered. I can not figure out #4 even by looking at similar questions. Thank you

Explanation / Answer

Ans 2 New Sysytem Cash Outflow   Year 2 Year 1 Year 3 Year 4 Year 5 Repaired in Inspection process (325*41)) 13325 13325 13325 13325 13325 Refund to customers (380-325)*185*1.25 12718.75 12718.75 12718.75 12718.75 12718.75 Annual Cost 63500 63500 63500 63500 63500 Total cash outflow 89543.75 salvage vale -20000 Total cash outflow 89543.75 89543.75 89543.75 69543.75 Initial cost in new sysytem Machine 280000 Training Cost 820000 Initial cost in new sysytem 1100000 Ans 24Calculation of NPV-New System Year Cash outflow Discount Factor 6% Discount Cash outflow 0 1100000 1 1100000 1 89543.75 0.9434 84475.24 2 89543.75 0.8900 79693.62 3 89543.75 0.8396 75182.66 4 89543.75 0.7921 70927.04 5 69543.75 0.7473 51967.14 NPV 1462246 Its cash outflow -1462246 If you need any more clarification, do let me know

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