Problem 9-25 https://edugen.wileyplus.com/edugen/shared/assignment/test/qprint.u
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Problem 9-25 https://edugen.wileyplus.com/edugen/shared/assignment/test/qprint.uni Print by: Caitlin Sarah Baker S1708-ACCT-2020-400:S1708-ACCT-2020 Managerial Accounting Concepts 400 / 202 Ch 9 EOC 20pts *Problem 9-25 Blue Spruce Company manufactures automobile components for the worldwide market. The company has three large production facilities in Virginia, New Jersey, and California, which have been operating for many years. Brett Harker, vice president of production, believes it is time to upgrade operations by implementing computer-integrated manufacturing (CIM) at one of the plants Brett has asked corporate controller Connie Carson to gather information about the costs and benefits of implementing CIM. Carson has gathered the following data: Initial equipment cost Working capital required at start-up Salvage value of existing equipment Annual operating cost savings Salvage value of new equipment at end of its useful life Working capital released at end of its useful life Useful life of equipment $7,146,000 $ 714,600 $89,325 $1,000,440 238,200 $ 714,600 10 years $ Blue Spruce Company uses a 12% discount rate Click here to view the factor table Calculate the net present value of Blue Spruce's proposed investment in CIM. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971. Enter negative amounts using a negative sign preceding the number, e.g. -59,991 or parentheses, e.g. (59,991).) Net present value $ Use Excel or a similar spreadsheet application to calculate the internal rate of return on Blue Spruce's proposed investment. (Round internal rate of return to 2 decimal places, e.g. 15.25%.) Internal rate of return Andrew Burr, manager of the Virginia plant, has been looking over Carson's information and believes she has missed some important benefits of implementing CIM. Burr believes that implementing CIM will reduce scrap and rework costs by $178,650 per year. The CIM equipment will take up less floor space in the factory than the old equipment, freeing up 6,000 square feet of space for a planned nevw research facility. Initial plans called for renting additional space for the new facility, at a cost of $23.82 per square foot. Calculate a revised net present value and internal rate of return using this additional information. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal places, e.g. 58,971. Round internal rate of return to 2 decimal places, e.g. 15.25%.) 1 of 2 11/16/17, 11:52 AMExplanation / Answer
Answer 1. Calculation of NPV of Project Particulars Year 12% Factor Amount Present value D C C X D Cash Inflow Salvage Value of Old Equip. 0 1.00000 89,325 89,325 Saving in Annual Operating Costs 1-10 5.65022 1,000,440 5,652,706 Salvage Value of New Equip. 10 0.32197 238,200 76,693 Working Capital Released 10 0.32197 714,600 230,080 A. Total Cash Inflow - PV 6,048,804 Cash Outflow Cost of New Equipment 0 1.000 7,146,000 7,146,000 Working Capital Requirement 0 1.000 714,600 714,600 B. Total Cash Outflow - PV 7,860,600 NPV (A - B) (1,811,796) Answer 2. Year Project X1 Intial Investment 0 (7,771,275.00) Expcted Net Cash inflow 1 1,000,440.00 2 1,000,440.00 3 1,000,440.00 4 1,000,440.00 6 1,000,440.00 7 1,000,440.00 8 1,000,440.00 9 1,000,440.00 10 1,953,240.00 Internal Rate of Return 4.88% Answer 3. Calculation of NPV of Project Particulars Year 12% Factor Amount Present value D C C X D Cash Inflow Salvage Value of Old Equip. 0 1.00000 89,325 89,325 Saving in Annual Operating Costs 1-10 5.65022 1,000,440 5,652,706 Saving in Scrap & Rework Costs 1-10 5.65022 178,650 1,009,412 Renting of Space 1-10 5.65022 142,920 807,529 Salvage Value of New Equip. 10 0.32197 238,200 76,693 Working Capital Released 10 0.32197 714,600 230,080 A. Total Cash Inflow - PV 7,865,745 Cash Outflow Cost of New Equipment 0 1.000 7,146,000 7,146,000 Working Capital Requirement 0 1.000 714,600 714,600 B. Total Cash Outflow - PV 7,860,600 NPV (A - B) 5,145 Answer 4. Year Project X1 Intial Investment 0 (7,771,275.00) Expcted Net Cash inflow 1 1,322,010.00 2 1,322,010.00 3 1,322,010.00 4 1,322,010.00 6 1,322,010.00 7 1,322,010.00 8 1,322,010.00 9 1,322,010.00 10 2,274,810.00 Internal Rate of Return 10.75%
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