Micro Tek Inc. is considering an investment in new equipment that will be used to manufacture a smartphone. The phone is expected to generate additional annual sales of 4,000 units at $450 per unit. The equipment has a cost of $3,950,000, residual value of $50,000, and an 8-year life. The equipment can only be used to manufacture the phone. The cost to manufacture the phone follows: Cost per unit: Direct labor $20 Direct materials 205 Factory overhead (including depreciation) 39 Total cost per unit $264 Determine the average rate of return on the equipment. Round your answer to one decimal place. fill in the blank 1 %

Micro Tek Inc. is considering an investment in new equipment that will be used to manufacture a smartphone. The phone is expected to generate additional annual sales of 4,000 units at $450 per unit. The equipment has a cost of $3,950,000, residual value of $50,000, and an 8-year life. The equipment can only be used to manufacture the phone. The cost to manufacture the phone follows: Cost per unit: Direct labor $20 Direct materials 205 Factory overhead (including depreciation) 39 Total cost per unit $264 Determine the average rate of return on the equipment. Round your answer to one decimal place. fill in the blank 1 %

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 31P: Jonfran Company manufactures three different models of paper shredders including the waste...

See similar textbooks

Similar questions

Oahu Inc. is considering an investment in new equipment that will be used to manufacture a smartphone. The phone is expected to generate additional annual sales of 3,900 units at $311 per unit. The equipment has a cost of $362,700, residual value of $27,300, and an 8-year life. The equipment can only be used to manufacture the phone. The cost to manufacture the phone follows: Line Item Description Amount Cost per unit: Direct labor $53.00 Direct materials 207.00 Factory overhead (including depreciation) 35.50 Total cost per unit $295.50 Determine the average rate of return on the equipment. If required, round to the nearest whole percent.fill in the blank 1 of 1 %
An assembly operation at a software company now requires $250,000 per year in labor costs. A robot can be purchased and installed to automate the operation. The robot will cost $800,000, have an economic life of ten years, and have no residual value at the end of its life. Maintenance and operating expenses of $64,000 per year for the robot are estimated. MARR is 15%. Determine whether this is a viable project. Solve the problem by: (a) Present worth analysis (b) Annual cash flow analysis+- (c) Rate of return analysis
Hana Inc. is considering an investment in new equipment that will be used to manufacture a smartphone. The phone is expected to generate additional annual sales of 4,300 units at $275 per unit. The equipment has a cost of $399,900, residual value of $30,100, and an 8-year life. The equipment can only be used to manufacture the phone. The cost to manufacture the phone follows: Cost per unit: Direct labor $47.00 Direct materials 184.00 Factory overhead (including depreciation) 32.50 Total cost per unit $263.50 Determine the average rate of return on the equipment. If required, round to the nearest whole percent. %
Oahu Inc. is considering an investment in new equipment that will be used to manufacture a smartphone. The phone is expected to generate additional annual sales of 5,100 units at $276 per unit. The equipment has a cost of $521,700, residual value of $39,300, and an 8-year life. The equipment can only be used to manufacture the phone. The cost to manufacture the phone follows: Line Item Description Amount Cost per unit: Direct labor $47.00 Direct materials 182.00 Factory overhead (including depreciation) 31.60 Total cost per unit $260.60 Determine the average rate of return on the equipment. If required, round to the nearest whole percent.
An assembly operation at a software company now requires $100,000 per year in labor costs. A robot can be purchased and installed to automate this operation. The robot will cost $200,000 and will have no market value at the end of the 10-year study period. Maintenance and operation expenses of the robot are estimated to be $64,000 per year. Invested capital must earn at least 12% per year. Use the IRR method to determine if the robot is a justifiable investment.
MKM International is seeking to purchase a new CNC machine in order to reduce costs. Two alternative machines are in consideration. Machine 1 costs $450,000, but yields a 15 percent savings over the current machine used. Machine 2 costs $800,000, but yields a 25 percent savings over the current machine used. In order to meet demand, the following forecasted cost information for the current machine is also provided. LOADING... Year Project Cost 1 1,000,000 2 1,350,000 3 1,450,000 4 1,550,000 5 2,550,000 a. Based on the NPV of the cash flows for these 5 years, which machine should MKM International purchase? Assume a discount rate of 12 percent. Assuming a discount rate of 12 percent, MKM International should purchase ▼ machine 1 or machine 2 because the NPV of machine 1 is $------ and the NPV of machine 2 is $--------. (Enter your responses…
Nature’s Way Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The garden tool is expected to generate additional annual sales of 5,900 units at $52 each. The new manufacturing equipment will cost $127,800 and is expected to have a 10-year life and $9,800 residual value. Selling expenses related to the new product are expected to be 4% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis: Direct labor $8.8 Direct materials 28.9 Fixed factory overhead-depreciation 2 Variable factory overhead 4.5 Total $44.2 Determine the net cash flows for the first year of the project, Years 2–9, and for the last year of the project. Use the minus sign to indicate cash outflows. Do not round your intermediate calculations but, if required, round your final answer to the nearest dollar. Nature’s Way Inc. Net Cash Flows Year 1 Years 2-9 Last Year Initial investment Operating cash…
Natural Foods Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The new garden tool is expected to generate additional annual sales of 7,600 units at $38 each. The new manufacturing equipment will cost $123,500 and is expected to have a 10-year life and a $9,500 residual value. Selling expenses related to the new product are expected to be 5% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis: Direct labor $6.50 Direct materials 21.00 Fixed factory overhead-depreciation 1.50 Variable factory overhead 3.30 Total $32.30 Determine the net cash flows for the first year of the project, Years 2–9, and for the last year of the project. Use the minus sign to indicate cash outflows. Do not round your intermediate calculations but, if required, round your final answers to the nearest dollar. Natural Foods Inc.Net Cash Flows Year 1 Years 2-9 Last Year Initial investment $fill in the blank 1…
An assembly operation at a software company currently requires $100,000 per year in labor costs. A robot can be purchased and installed to automate this operation, and the robot will cost $200,000 with no MV at the end of its 10-year life. The robot, if acquired, will be depreciated using SL depreciation to a terminal BV of zero after 10 years. Maintenance and operation expenses of the robot are estimated to be $64,000 per year. Thecompany has an effective income tax rate of 40%. Invested capital must earn at least 8% after income taxes are taken into account. Solve, a. Use the IRR method to determine if the robot is a justifiable investment. b.If MACRS (seven-year recovery period) had been used in Part (a), would the after-tax IRR be lower or higher than your answer to Part (a)?
Natural Foods Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The new garden tool is expected to generate additional annual sales of 7,600 units at $52 each. The new manufacturing equipment will cost $164,600 and is expected to have a 10-year life and a $12,600 residual value. Selling expenses related to the new product are expected to be 5% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis: Direct labor $8.80 Direct materials 28.90 Fixed factory overhead-depreciation 2.00 Variable factory overhead 4.50 Total $44.20 Determine the net cash flows for the first year of the project, Years 2–9, and for the last year of the project. Use the minus sign to indicate cash outflows. Do not round your intermediate calculations but, if required, round your final answers to the nearest dollar. Natural Foods Inc. Net Cash Flows Year 1 Years 2-9 Last Year Initial investment $…
Natural Foods Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The new garden tool is expected to generate additional annual sales of 5,500 units at $48 each. The new manufacturing equipment will cost $107,200 and is expected to have a 10-year life and a $8,200 residual value. Selling expenses related to the new product are expected to be 5% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis: Direct labor $8.20 Direct materials 26.70 Fixed factory overhead-depreciation 1.80 Variable factory overhead 4.10 Total $40.80 Determine the net cash flows for the first year of the project, Years 2–9, and for the last year of the project. Use the minus sign to indicate cash outflows. Do not round your intermediate calculations but, if required, round your final answers to the nearest dollar.
ClockWatchers is about to introduce a new employee monitoring tool and has determined that it will charge $100 per unit. The company must decide whether or not to purchase a high-capacity manufacturing machine. If the high-capacity machine is selected, then the cash fixed costs will be $5,000 per year, with variable costs of $50 per unit and depreciation and amortisation expenses of $2,000. Otherwise the fixed costs will be $2,000, with variable costs of $75 per unit and depreciation and amortisation expenses of $500. If EBIT Break-even is how the company evaluates its projects, then above what level of expected sales should ClockWatchers choose the high fixed cost alternative? 60 units 90 units120 units 180 units