Ca Cap 11-15. Mitch and Lydia Brenner own a small factory located in Bodega Bay, California....
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Ca Cap 11-15. Mitch and Lydia Brenner own a small factory located in Bodega Bay, California. They manufacture rubber snakes used to scare birds away from houses, gardens, and playgrounds. The recent and unexplained increase in the bird population in northern California has significantly increased the demand for the Brenners' products. To take advantage of this marketing opportunity, they plan to add a new molding machine that will double the output of their existing facility. The cost of the new machine is $20,000. The machine setup fee is $2,000. With this purchase, current assets must increase by $5,000 and current liabilities will increase by $3,000. The economic life of the new machine is APTER four years, and it falls under the MACRS three-year depreciation schedule. The machine is expected to be obsolete at the end of the fourth year and have no salvage value. The Brenners anticipate recouping 100 percent of the additional investment in net working capital at the end of year 4. Sales are expected to increase by $20,000 each year in years 1 and 2. By year 3, the Brenners expect sales to be mostly from repeat customers purchasing replacements instead of sales to new customers. Therefore, the increase in sales for years 3 and 4 is estimated to only be $10,000 in each year. The increase in operating expenses is estimated to be 20 percent of the annual change in sales. Assume the marginal tax rate is 40 percent. For more Spreads! for Micro a. Calculate the initial net incremental cash flow. b. Calculate the net incremental operating cash flows for years I through 4. Round all calculations to the nearest whole dollar. Use Table 4-1 to calculate the depreciation expense. c. Assume the Brenners' discount rate is 14 percent. Calculate the net present value of this project. Would you recommend the Brenners add this new machine to their factory? tinn enecializes in the custom design, cutting, and polishing of stone cted yiel fins are commonly used share of co Ca Cap 11-15. Mitch and Lydia Brenner own a small factory located in Bodega Bay, California. They manufacture rubber snakes used to scare birds away from houses, gardens, and playgrounds. The recent and unexplained increase in the bird population in northern California has significantly increased the demand for the Brenners' products. To take advantage of this marketing opportunity, they plan to add a new molding machine that will double the output of their existing facility. The cost of the new machine is $20,000. The machine setup fee is $2,000. With this purchase, current assets must increase by $5,000 and current liabilities will increase by $3,000. The economic life of the new machine is APTER four years, and it falls under the MACRS three-year depreciation schedule. The machine is expected to be obsolete at the end of the fourth year and have no salvage value. The Brenners anticipate recouping 100 percent of the additional investment in net working capital at the end of year 4. Sales are expected to increase by $20,000 each year in years 1 and 2. By year 3, the Brenners expect sales to be mostly from repeat customers purchasing replacements instead of sales to new customers. Therefore, the increase in sales for years 3 and 4 is estimated to only be $10,000 in each year. The increase in operating expenses is estimated to be 20 percent of the annual change in sales. Assume the marginal tax rate is 40 percent. For more Spreads! for Micro a. Calculate the initial net incremental cash flow. b. Calculate the net incremental operating cash flows for years I through 4. Round all calculations to the nearest whole dollar. Use Table 4-1 to calculate the depreciation expense. c. Assume the Brenners' discount rate is 14 percent. Calculate the net present value of this project. Would you recommend the Brenners add this new machine to their factory? tinn enecializes in the custom design, cutting, and polishing of stone cted yiel fins are commonly used share of co
Expert Answer:
Answer rating: 100% (QA)
2 Home Insert Page Layout Formulas Data View Tell me what you want to do fx A B D E F G Cost of Mach... View the full answer
Related Book For
Operations Management Creating Value Along the Supply Chain
ISBN: 978-0470525906
7th Edition
Authors: Roberta S. Russell, Bernard W. Taylor
Posted Date:
Students also viewed these management leadership questions
-
What is the correct answer (with the appropriate number of significant figures) for the calculation of 7.5+ 2.26 + 1.311+ 2? 13 13.071 10 13.0
-
Susan plans for her children and children's children to inherit a perpetual annual cash amount entitlement starting at some point in the future. Susan estimates that her investment will be worth one...
-
A machine costing $216,000 with a four-year life and an estimated $20,000 salvage value is installed in Luther Company's factory on January 1. The factory manager estimates the machine will produce...
-
Mark Cotteleer owns a company that manufactures sailboats, Actual demand for Marks sailboats during each season in 2006 through 2009 was as follows: Mark has forecasted that annual demand for his...
-
Why have subsidiaries? Why not have the corporation take the form of a single legal entity?
-
What is the best type of health insurance? Justify your answer.
-
A hydraulic lift is required to raise a load of 15 kN through a height of 12 m once in every 90 seconds. The lift moves with a velocity of 0.75 m/s. Determine the power required to drive the lift and...
-
Albers Company acquires an 80% interest in Barker Company on January 1, 2011, for $850,000. The following determination and distribution of excess schedule is prepared at the time of purchase: Albers...
-
Head-First Company plans to sell 5,120 bicycle helmets at $74 each in the coming year. Unit variable cost is $45 (includes direct materials, direct labor, variable factory overhead, and variable...
-
An earlier version of the IBM mainframe, the S/390 G4, used three levels of cache.As with the z990, only the first level was on the processor chip [called the processor unit (PU)].The L2 cache was...
-
What is the contemporary landscape of parenthood within the United States, and what does the essence of parental responsibility entail in its entirety?
-
Discuss the factors that have contributed to the emergence of balanced scorecard as a framework for performance measurement/reporting.
-
What are the key differences between currency forwards and futures contracts?
-
Why is operating exposure to currency risk more difficult to manage than transaction exposure?
-
Compare futures margins with options premiums.
-
What does it mean for operating exposure to be measured by a regression coefficient?
-
Mutasim is a business owner who wishes to expand his operations to new markets. If Mutasim wishes to get access to different business systems that would allow him to achieve his goals faster are: a....
-
Huntingdon Capital Corp. is a competitor of Plazacorp and First Capital Realty. Huntingdon reported the following selected information (in millions):...
-
Mary Hernandez has invested in a stock mutual fund and she is considering liquidating and investing in a bond fund. She would like to forecast the price of the stock fund for the next month before...
-
The Colonial House Furniture Company manufactures two-drawer oak file cabinets that are sold unassembled through catalogues. The company initiates production of 150 cabinet packages each week. The...
-
1. Create a service blueprint of the refinancing process. Why do you think the bank organized its process this way? What problems have ensued? 2. Examine the process carefully. Look at customer/...
-
The responses most likely to be associated with use of a force-coercion change strategy are best described as __________. (a) internalized commitment (b) temporary compliance (c) passive cooptation...
-
The assessment center approach to employee selection relies heavily on ____________ to evaluate a candidates job skills. (a) intelligence tests (b) simulations and experiential exercises (c) 360...
-
Which of the following questions can an interviewer legally ask a job candidate during a telephone interview? (a) Are you pregnant or planning to soon start a family? (b) What skills do you have that...
Study smarter with the SolutionInn App