time value of money
Project Description:
i need this completed by 6pm on friday, may 1st usa eastern coast time. i do not care what the project time on solution inn says, i cannot alter it. but this needs to be completed and back to me by 6pm usa eastern time on friday, may 1st. the sooner the better. the sooner, i may pay a little extra for good quality. while the problem itself may be long to read, any experienced accounting professional should be able to whip right through it. i am looking for someone for a deal that i can rely on for many projects coming up. do a good job at the price i need, i will come back to you!! i am reposting this because the last person did not follow through. please answer the basic questions below and show work. i know some of them may need a decent amount of work, so only show the necessities to see where the solution was derived. if you have questions, please let, me know. also, if you are placing a bid higher than $20, please do not bother. this really isnt that complicated...i will pay no attention to $60 bids. i am looking for a decent priced, accounting professionaly to build a rapore with.
thanks!
teddy bear company manufactures a single popular product, cuddly teddy bears. at the beginning of year 3, the following projected information is provided for that year with respect to the product line:
net sales (at $100/unit) $ 2,200,000
variable manufacturing costs (1,300,000)
contribution margin 900,000
fixed manufacturing costs (400,000)
income before i/t expense 500,000
i/t expense (35% rate) (175,000)
net income $325,000
the corporation is considering the purchase and integration of energyefficient equipment into its manufacturing process (investment a), effective january 1, year 3. information regarding the equipment is as follows:
cost $ 700,000
estimated useful life 10 years
salvage value $ 140,000
management estimates that the installation of this equipment would result in savings of 45% with respect to energy costs in years 1 through 5 and 60% in years 6 through 10. those costs (included in variable manufacturing costs above) currently run $100,000 per year. the equipment would have no other beneficial effect in terms of improving manufacturing capacity or the quality of the product. if the new equipment is purchased and installed, management believes that the current equipment can be scrapped for $200,000. the current equipment was purchased for $500,000 with an estimated useful life of 12 years, and was put into service at the beginning of year 1. teddy bear company depreciates all equipment using the straight line method (depreciation expense is included in the fixed manufacturing costs above).
the alternative (investment b) for teddy bear company is to continue using the old equipment (with a remaining estimated useful life of 10 years and a salvage value of $40,000) and invest the $700,000 into a safe (riskfree) investment account that pays 6% interest, compounded annually. tax would only be paid once on total earnings at the of 10 yearss, and the entire $700,000 investment would be returned (along with earnings).
additional assumptions that are made include the following:
* in years 1 and 2 (the first two of operations), all amounts given above were the same as projected for year 3 (net sales, variable manufacturing costs, etc.).
* over the next ten years, management expects the number of units sold and the price per unit sold to increase 3% and 5%, respectively, on an annual basis (effective january 1 of each year).
* management expects all variable costs to increase 6% annually (effective january 1 of each year).
* due to innovative practices, management believes that fixed manufacturing costs will remain the same across the 10 year period.
* the tax rate is expected to remain 35%.
* given the inherent risk and uncertainty of the potential investment in new equipment, management assumes a discount rate of 10% for that project.
* assume cash inflows for calculating normal payback period occur evenly throughout year; cash inflows for discounted payback period and net present value calculations occur at end of year.
problems to solve:
1) calculate the payback period of investment a.
2) calculate the discounted payback period of investment a.
3) calculate the accounting rate of return (arr) of investment a.
4) calculate the net present value (npv) and profitability index (p.i.) of investment a.
5) calculate the net present value (npv) and profitability index (p.i.) of investment b.
6) using your above calculations and information provided on the previous page, which option would you recommend to management of teddy bear company? please elaborate specifically on your response.
thanks!
teddy bear company manufactures a single popular product, cuddly teddy bears. at the beginning of year 3, the following projected information is provided for that year with respect to the product line:
net sales (at $100/unit) $ 2,200,000
variable manufacturing costs (1,300,000)
contribution margin 900,000
fixed manufacturing costs (400,000)
income before i/t expense 500,000
i/t expense (35% rate) (175,000)
net income $325,000
the corporation is considering the purchase and integration of energyefficient equipment into its manufacturing process (investment a), effective january 1, year 3. information regarding the equipment is as follows:
cost $ 700,000
estimated useful life 10 years
salvage value $ 140,000
management estimates that the installation of this equipment would result in savings of 45% with respect to energy costs in years 1 through 5 and 60% in years 6 through 10. those costs (included in variable manufacturing costs above) currently run $100,000 per year. the equipment would have no other beneficial effect in terms of improving manufacturing capacity or the quality of the product. if the new equipment is purchased and installed, management believes that the current equipment can be scrapped for $200,000. the current equipment was purchased for $500,000 with an estimated useful life of 12 years, and was put into service at the beginning of year 1. teddy bear company depreciates all equipment using the straight line method (depreciation expense is included in the fixed manufacturing costs above).
the alternative (investment b) for teddy bear company is to continue using the old equipment (with a remaining estimated useful life of 10 years and a salvage value of $40,000) and invest the $700,000 into a safe (riskfree) investment account that pays 6% interest, compounded annually. tax would only be paid once on total earnings at the of 10 yearss, and the entire $700,000 investment would be returned (along with earnings).
additional assumptions that are made include the following:
* in years 1 and 2 (the first two of operations), all amounts given above were the same as projected for year 3 (net sales, variable manufacturing costs, etc.).
* over the next ten years, management expects the number of units sold and the price per unit sold to increase 3% and 5%, respectively, on an annual basis (effective january 1 of each year).
* management expects all variable costs to increase 6% annually (effective january 1 of each year).
* due to innovative practices, management believes that fixed manufacturing costs will remain the same across the 10 year period.
* the tax rate is expected to remain 35%.
* given the inherent risk and uncertainty of the potential investment in new equipment, management assumes a discount rate of 10% for that project.
* assume cash inflows for calculating normal payback period occur evenly throughout year; cash inflows for discounted payback period and net present value calculations occur at end of year.
problems to solve:
1) calculate the payback period of investment a.
2) calculate the discounted payback period of investment a.
3) calculate the accounting rate of return (arr) of investment a.
4) calculate the net present value (npv) and profitability index (p.i.) of investment a.
5) calculate the net present value (npv) and profitability index (p.i.) of investment b.
6) using your above calculations and information provided on the previous page, which option would you recommend to management of teddy bear company? please elaborate specifically on your response.
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Price Type: Fixed
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