A company that manufactures recreational pedal boats has approached Mike Cichanowski to ask if he would...
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A company that manufactures recreational pedal boats has approached Mike Cichanowski to ask if he would be interested in using Current Designs' rotomold expertise and equipment to produce some of the pedal boat components. Mike is intrigued by the idea and thinks it would be an interesting way of complementing the present product line. One of Mike's hesitations about the proposal is that the pedal boats are a different shape than the kayaks that Current Designs produces. As a result, the company would need to buy an additional rotomold oven in order to produce the pedal boat components. This project clearly involves risks, and Mike wants to make sure that the returns justify the risks. In this case, since this is a new venture, Mike thinks that a 15% discount rate is appropriate to use to evaluate the project. As an intern at Current Designs, Mike has asked you to prepare an initial evaluation of this proposal. To aid in your analysis, he has provided the following information and assumptions. 1. The new rotomold oven will have a cost of $246,000, a salvage value of $0, and an 8-year useful life. Straight-line depreciation will be used. 2. The projected revenues, costs, and results for each of the 8 years of this project are as follows. Sales $203,600 Less: Manufacturing costs $128,400 Depreciation 31,600 Shipping and administrative costs 20,000 180,000 Income before income taxes 23,600 Income tax expense 9,600 Net income $14,000 Your answer is correct. Compute the annual rate of return. (Round answer to 2 decimal places, e.g. 15.25%.) Annual rate of return eTextbook and Media 11.38 % (b) Your answer is correct. Compute the payback period. (Round answer to 2 decimal places, e.g. 15.25.) Payback period 5.39 years Your answer is correct. Compute the net present value using a discount rate of 7%. (If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses eg (45). Round answer to O decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value 26291 Should the proposal be accepted using this discount rate? Accept the proposal. (d) Compute the net present value using a discount rate of 15%. (If the net present value is negative, use either a negative sign preceding the number eg-45 or parentheses e.g. (45). Round answer to O decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value $ Should the proposal be accepted using this discount rate? the proposal. eTextbook and Media A company that manufactures recreational pedal boats has approached Mike Cichanowski to ask if he would be interested in using Current Designs' rotomold expertise and equipment to produce some of the pedal boat components. Mike is intrigued by the idea and thinks it would be an interesting way of complementing the present product line. One of Mike's hesitations about the proposal is that the pedal boats are a different shape than the kayaks that Current Designs produces. As a result, the company would need to buy an additional rotomold oven in order to produce the pedal boat components. This project clearly involves risks, and Mike wants to make sure that the returns justify the risks. In this case, since this is a new venture, Mike thinks that a 15% discount rate is appropriate to use to evaluate the project. As an intern at Current Designs, Mike has asked you to prepare an initial evaluation of this proposal. To aid in your analysis, he has provided the following information and assumptions. 1. The new rotomold oven will have a cost of $246,000, a salvage value of $0, and an 8-year useful life. Straight-line depreciation will be used. 2. The projected revenues, costs, and results for each of the 8 years of this project are as follows. Sales $203,600 Less: Manufacturing costs $128,400 Depreciation 31,600 Shipping and administrative costs 20,000 180,000 Income before income taxes 23,600 Income tax expense 9,600 Net income $14,000 Your answer is correct. Compute the annual rate of return. (Round answer to 2 decimal places, e.g. 15.25%.) Annual rate of return eTextbook and Media 11.38 % (b) Your answer is correct. Compute the payback period. (Round answer to 2 decimal places, e.g. 15.25.) Payback period 5.39 years Your answer is correct. Compute the net present value using a discount rate of 7%. (If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses eg (45). Round answer to O decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value 26291 Should the proposal be accepted using this discount rate? Accept the proposal. (d) Compute the net present value using a discount rate of 15%. (If the net present value is negative, use either a negative sign preceding the number eg-45 or parentheses e.g. (45). Round answer to O decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value $ Should the proposal be accepted using this discount rate? the proposal. eTextbook and Media
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Related Book For
Accounting Principles
ISBN: 978-1118875056
12th edition
Authors: Jerry Weygandt, Paul Kimmel, Donald Kieso
Posted Date:
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