Sunset Inc. is trying to determine if they should invest in a new machine that w

Question

Sunset Inc. is trying to determine if they should invest in a new machine that would be more efficient and would general an annual profit of $100,000 (after tax).

The following estimates are available:

Initial cost   $279,800

Cost of capital 12%

Estimated life 4 years

Estimated residual value $ 0

Determine the net present value of the new machine (nearest answer if using a financial calculator or Excel).

$24,310

$23,930

$19,509

$(36,816)

Lightning-Bug Products Company is preparing a cash receipts schedule for the fourth quarter of 200X. Total sales for August and September of 200X are $130,000 and $110,000, respectively.

Budgeted sales for the fourth quarter of 200X follow:

Oct.         Nov.           Dec.

Budgeted total sales                   $106,000   $125,000    $149,000

25% of sales are for cash; the remaining 75% are on account. Ten percent of the sales on account are collected in the month of sale, 70% in the month following the sale, and the remaining 20% in the second month following the sale. Lightning-Bug Products does not anticipate any uncollectible accounts.

Determine the cash collected in December:

$126,480

$127,240

$128,680

$129,950

Rochester Shoe and Boot Shop plans to produce the following quantity of waterproof boots during the first four months of 200X:

Units

January 1,300

February 2,300

March   500

April                  200

Each unit requires 6 feet of materials. At the beginning of January, they had 1,950 feet of materials on hand, and plans to maintain an ending inventory of materials equal to 25% of next months production needs. Each foot of materials is expected to cost $5.

Determine the direct materials to be purchased in January:

8,250 feet

11,100 feet

9,300 feet

$24,310

$23,930

$19,509

$(36,816)

Explanation / Answer

Requirement 1)

NPV will be closest to $ 23930

Rrequirement 2)

Cash Sales $ 37250

10% cash collected on account sales $ 11175

Cash collected for November $ 65625

Cash collected for october $15900

Cash collected in the december $ 129950

Requirement 3)

Opening inventory 1950 feet

in production of 1300 units required 7800 feet

ending inventory must be 3450 feet

Purchase should be (7800+3450-1950) = 9300 feet

Year Cash Flow PVF @ 12% PV 0        (279,800) 1      (279,800) 1          100,000 0.89285           89,285 2          100,000 0.79719           79,719 3          100,000 0.71178           71,178 4          100,000 0.63552           63,552 NPV           23,934

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.