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Statement of Income 2017 $7,000,000 (Thousands (Year ended December 31) 2018 Net Sales $8,000,000 Cost of Sales Cost of Goods Sold 5,500,000 Gross Income 2,500,000 Selling, general and Administrative 2,050,000 Net Operating Income (NOI) 450,000 4,800,000 2,200,000 1,275,000 925,000 Other Income & Expenses Extraordinary Gain (Loss) Interest Expense Net Profit Before Taxes Income Taxes Net Income 200,000 100,000 75,000 850,000 1,650,000 255,000 495,000 $595,000 $1,155,000 Balance Sheet 2020 2019 $ $ 125,000 1,450,000 200,000 1,000,000 (Thousands) (Year ended December 31) Assets Current Assets Cash Receivables Inventories Raw Material Work-in-Process (WIP) Finished Goods Total Inventory Other Current Assets 300,000 200,000 330,000 250,000 180,000 250,000 830,000 1,350,000 3,755,000 680,000 1,200,000 3,080,000 Property Plant & Equipment Land & improvements, buildings Machinery & Equipment Less Accumulated depreciation 320,000 700,000 (350,000) 670,000 175,000 845,000 $4,600,000 300,000 675,000 (340,000) 635,000 150,000 785,000 $3,865,000 Other Assets Total Assets Liabilities and Shareholder Equity Current Liabilities Accounts Payable Accrued compensation Other Current Liabilities 400,000 100,000 200,000 700,000 600,000 160,000 150,000 300,000 90,000 150,000 540,000 200,000 100,000 35,000 Long Term Debt Deferred liabilities Other long-term liabilities Common shareholder's equity Common stock Additional paid-in capital Retained earnings 900,000 500,000 1,590,000 $4,600,000 900,000 1,000,000 1,090,000 $3,865,000 You have been asked to evaluate an investment to replace an old pill packaging machine with a newer model. Use the financial statements to calculate the ROA and any other necessary information. Use the investment worksheet and the attached financial statements to complete the capital budgeting worksheet. a. Using the most current year, what is the division's ROA? Investment: Pill packaging machine Old Machine (Model A11) New Machine (Model A15) Purchase Price $75,000 $70,000 Estimated Useful Life 8 years 10 years Disposal (Salvage) Value $15,000 $10,000 Accumulated Depreciation $37,500 Market Value of machine $45,000 Installation costs $20,000 Yearly Operating Cash Flow $45,000 $32,000 $45,000 Yearly New Product Revenue Cash Flow (enabled by new machine capabilities) New Product COGS Cash Flow $30,000 Yearly Maintenance Cash Flow $16,000 $19,500 Machine Overhaul (end of year 5) $6,000 $8,000 Other data The division's required rate of return is 12%. The division's tax rate is 30%. Sales tax on new machine is 5% What is the NPV of the equipment replacement decision including any working capital requirements? Complete the Capital Budgeting Worksheet. Capital Budgeting Worksheet Capital Budgeting Proposal #: (Net) NPV Decision Metrics 1. What is the investment's Payback? 2. What is the investment's ROI? 3. What is the investment's IRR? 4. What is the investment's Simple Rate of Return? 5. What is the investment's Profitability Index? Statement of Income 2017 $7,000,000 (Thousands (Year ended December 31) 2018 Net Sales $8,000,000 Cost of Sales Cost of Goods Sold 5,500,000 Gross Income 2,500,000 Selling, general and Administrative 2,050,000 Net Operating Income (NOI) 450,000 4,800,000 2,200,000 1,275,000 925,000 Other Income & Expenses Extraordinary Gain (Loss) Interest Expense Net Profit Before Taxes Income Taxes Net Income 200,000 100,000 75,000 850,000 1,650,000 255,000 495,000 $595,000 $1,155,000 Balance Sheet 2020 2019 $ $ 125,000 1,450,000 200,000 1,000,000 (Thousands) (Year ended December 31) Assets Current Assets Cash Receivables Inventories Raw Material Work-in-Process (WIP) Finished Goods Total Inventory Other Current Assets 300,000 200,000 330,000 250,000 180,000 250,000 830,000 1,350,000 3,755,000 680,000 1,200,000 3,080,000 Property Plant & Equipment Land & improvements, buildings Machinery & Equipment Less Accumulated depreciation 320,000 700,000 (350,000) 670,000 175,000 845,000 $4,600,000 300,000 675,000 (340,000) 635,000 150,000 785,000 $3,865,000 Other Assets Total Assets Liabilities and Shareholder Equity Current Liabilities Accounts Payable Accrued compensation Other Current Liabilities 400,000 100,000 200,000 700,000 600,000 160,000 150,000 300,000 90,000 150,000 540,000 200,000 100,000 35,000 Long Term Debt Deferred liabilities Other long-term liabilities Common shareholder's equity Common stock Additional paid-in capital Retained earnings 900,000 500,000 1,590,000 $4,600,000 900,000 1,000,000 1,090,000 $3,865,000 You have been asked to evaluate an investment to replace an old pill packaging machine with a newer model. Use the financial statements to calculate the ROA and any other necessary information. Use the investment worksheet and the attached financial statements to complete the capital budgeting worksheet. a. Using the most current year, what is the division's ROA? Investment: Pill packaging machine Old Machine (Model A11) New Machine (Model A15) Purchase Price $75,000 $70,000 Estimated Useful Life 8 years 10 years Disposal (Salvage) Value $15,000 $10,000 Accumulated Depreciation $37,500 Market Value of machine $45,000 Installation costs $20,000 Yearly Operating Cash Flow $45,000 $32,000 $45,000 Yearly New Product Revenue Cash Flow (enabled by new machine capabilities) New Product COGS Cash Flow $30,000 Yearly Maintenance Cash Flow $16,000 $19,500 Machine Overhaul (end of year 5) $6,000 $8,000 Other data The division's required rate of return is 12%. The division's tax rate is 30%. Sales tax on new machine is 5% What is the NPV of the equipment replacement decision including any working capital requirements? Complete the Capital Budgeting Worksheet. Capital Budgeting Worksheet Capital Budgeting Proposal #: (Net) NPV Decision Metrics 1. What is the investment's Payback? 2. What is the investment's ROI? 3. What is the investment's IRR? 4. What is the investment's Simple Rate of Return? 5. What is the investment's Profitability Index