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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Pathways Appliance Company is planning to introduce a built-in blender to its line of small home appliances. Annual sales of the blender are estimated at 12,000 units at a price of $35 per unit. Variable manufacturing costs are estimated at $15 per unit, incremental fixed manufacturing costs (other than depreciation) at $60,000 annually, and incremental selling and general expenses relat- ing to the blenders at $50,000 annually.
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To build the blenders, the company must invest $260,000 in molds, patterns, and special equipment. Since the company expects to change the design of the blender every four years, this equipment will have a four-year service life with no salvage value. Depreciation will be com- puted on a straight-line basis. All revenue and expenses other than depreciation will be received or paid in cash. The company’s combined state and federal tax rate is 40  percent.
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a.      Prepare a schedule showing the estimated annual net income from the proposal to manufacture and sell the blenders.
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b.      Compute the annual net cash flows expected from the proposal.
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c.      Compute for this proposal the (1) payback period (round to the nearest tenth of a year),
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(2) return on average investment (round to the nearest tenth of a percent), and (3) net present value, discounted at an annual rate of 15 percent. Use Exhibits 26–3 and 26–4 where necessary.
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