ACCT505Part BCapital Budgeting problemData:Cost of new equipment$200,000Expected life of equipment in years5Disposal value in 5 years$40,000Life production - number of cans5,500,000 Annual production or purchase needs1,100,000Initial training costs0Number of workers needed3 Annual hours to be worked per employee2,000Earnings per hour for employees$12.00 Annual health benefits per employee$2,500Other annual benefits per employee-% of wages18%Cost of raw materials per can$0.25Other variable production costs per can$0.05Costs to purchase cans - per can$0.45Required rate of return12%Tax rate35%MakeCost to produce Annual cost of direct material:Need of 1,100,000 cans per year$275,000 Annual cost of direct labor for new employees:Wages72,000Health benefits7,500Other benefits12,960Total wages and benefits92,460Other variable production costs55,000Total annual production costs$422,460 Annual cost to purchase cans
Part 1 Cash flows over the life of the projectBefore TaxItemAmount
Annual cash savings$72,540Tax savings due to depreciation.
ACCT505Part BCapital Budgeting problemData:Cost of new equipment$200,000Expected life of equipment in years5Disposal value in 5 years$40,000Life production - number of cans5,500,000 Annual production or purchase needs1,100,000Initial training costs0Number of workers needed3 Annual hours to be worked per employee2,000Earnings per hour for employees$12.00 Annual health benefits per employee$2,500Other annual benefits per employee-% of wages18%Cost of raw materials per can$0.25Other variable production costs per can$0.05Costs to purchase cans - per can$0.45Required rate of return12%Tax rate35%MakeCost to produce Annual cost of direct material:Need of 1,100,000 cans per year$275,000 Annual cost of direct labor for new employees:Wages72,000Health benefits7,500Other benefits12,960Total wages and benefits92,460Other variable production costs55,000Total annual production costs$422,460 Annual cost to purchase cans
Part 1 Cash flows over...