2 ask for cadh flows only, no present values. Since this problem is a capital bu
ID: 2569320 • Letter: 2
Question
2 ask for cadh flows only, no present values. Since this problem is a capital budgeting problem, they are not worth any points, and require that you use the correct cash flows from 1 and 2 to determine the net present values of the two alternatives. You should you have unlimited tries. use the present value tables in the Coursepack The Brisbane Manufacturing Company produces a single model of a cD player. Eadh player is sold for $183 with a resulting contribution margin of $72. Brisbane's 2,100 units turn out to be defective 1,680 of them are detected in the management is considering a change in its quality control system. Currently, Brisbane spends $38,500 a year to inspect the CD players. An average of are detedted in the inspection process and are repaired for $80. If a defective CD player is not identified in the receives it is given a full refund of the purchase price. purchase of an x-ray machine for $200,000. The machine would last for four years and would have salvage value time of $21,000. Brisbane would also spend $620,000 immediately to train workers to better detect and repair defective units. Annual inspection costs at that would increase by $21,000. This new control system would reduce the number of defective units to and repaired at a cost of $47 per unit. Customers who sill received defective players would be given a refund equal to one-and-a-half times the purchase price. Osuestions 182 (Highlight the ANSWERS in the CHEGG explanation 1. What is the Year 2 cash fow if Brisbane keeps using its aurrent system? (answer cant be -98560) Submit Anower Tries o/99 2. What is the Year 2 cash flow if Brisbane replaces its current system? (answer cant be 58385) Ste Arower Tres 0/99 Questions 3.&4 1s points each; 5 tries each] 3.Assum ng adscount rate of 6%, what is the net present value if Brisbane keeps using its ament (cant be -341521) Submit Anower Tries o/s 4. Aosum ng decount rate of 6%, what is the net present value if Brisbane replaces its current system? (can't be -601056)Explanation / Answer
1. Year 2 cash flow by using current system
Inspection cost = 38500
Cost of repairing 1680 defective units = 1680×80 = 134400
Cost of refund of defective units = (2100-1680)×183 = 76860
Total cash flow = 249760
2. Year 2 cash flow by replacing old system
Cost of inspection = 38500+21000 = 59500
Cost of repairing defective units = 300×47 = 14100
Cost of refund of defective units = 70×183×1.5 = 19215
Total cash flow = 92815
3. Net present value if current system is used
Annual cash outflow = 249760
Discount rate = 6%
Annuity factor for 4 years = 3.47
Net present value of cash outflow = 249760×3.47 = 866667
4. Net present value if current system is replaced
Year 0
Cash outflow = 200000+620000 = 820000
Year 1
Cash outflow = 92815×.943 = 87525
Year 2
Cash outflow = 92815×.890 = 82605
Year 3
Cash outflow = 92815×.840 = 77965
Year 4
Cash outflow = (92815×.792) - (21000×.792)
= 56877
Net present value of cash flow = 1124972
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