Windsor Skateboards is considering building a new plant. John Al-Saigh, the company's marketing manager, is an...
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Windsor Skateboards is considering building a new plant. John Al-Saigh, the company's marketing manager, is an enthusiastic supporter of the new plant. Patricia Williams, the company's chief financial officer, is not so sure that the plant is a good idea. Currently, the company purchases its skateboards from foreign manufacturers. The following figures were estimated for the construction of a new plant: Cost of plant $6,120,000 Annual cash inflows $6,120,000 Annual cash outflows $5,661,000 Estimated useful life 15 years Salvage value Discount rate $1,020,000 8% John believes that these figures understate the true potential value of the plant. He suggests that by manufacturing its own skateboards the company will benefit from a "buy Canadian" patriotism. He also notes that the firm has had numerous quality problems with the skateboards manufactured by its suppliers. He suggests that the inconsistent quality has resulted in lost sales, increased warranty claims, and some costly lawsuits. Overall, he believes sales will be $255,000 higher each year than projected above, and that the savings from lower warranty costs and legal costs will be $102,000 per year. He also believes that the project is not as risky as assumed above, and that a 6% discount rate is more reasonable. Click here to view the factor table. (a) Calculate the project's net present value based on the original projections. (For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.g. 1.25124. If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round final answer to O decimal places, e.g. 5,275.) Net present value $ Determine whether it should be accepted or not. It should be Windsor Skateboards is considering building a new plant. John Al-Saigh, the company's marketing manager, is an enthusiastic supporter of the new plant. Patricia Williams, the company's chief financial officer, is not so sure that the plant is a good idea. Currently, the company purchases its skateboards from foreign manufacturers. The following figures were estimated for the construction of a new plant: Cost of plant $6,120,000 Annual cash inflows $6,120,000 Annual cash outflows $5,661,000 Estimated useful life 15 years Salvage value Discount rate $1,020,000 8% John believes that these figures understate the true potential value of the plant. He suggests that by manufacturing its own skateboards the company will benefit from a "buy Canadian" patriotism. He also notes that the firm has had numerous quality problems with the skateboards manufactured by its suppliers. He suggests that the inconsistent quality has resulted in lost sales, increased warranty claims, and some costly lawsuits. Overall, he believes sales will be $255,000 higher each year than projected above, and that the savings from lower warranty costs and legal costs will be $102,000 per year. He also believes that the project is not as risky as assumed above, and that a 6% discount rate is more reasonable. Click here to view the factor table. (a) Calculate the project's net present value based on the original projections. (For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.g. 1.25124. If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round final answer to O decimal places, e.g. 5,275.) Net present value $ Determine whether it should be accepted or not. It should be
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Managerial Accounting Tools for Business Decision Making
ISBN: 978-1118856994
4th Canadian edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, Ibrahim M. Aly
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