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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
I need an actual excel spreadsheet to see how you got your answers with cash flow chart if possible.
A widget manufacturer currently produces 200,000 units per year. It buys widget lids from an outside supplier at a price of $2 a lid. The plant manager believes that it would be cheaper to make these lids rather than buy them. Direct production costs are estimated to be only $1.50 a lid. The necessary machiinery would cost $150,000 and last 10 years. This investment could be written off for tax purposes using the seven-year tax depreciation schedule. The plant manager estimates that the operation would require additional working capital of $30,000 but argues that this sum can be ignored sice it is recoverable at the end of 10 years. If the company pays tax at a rate of 35% and the opportunity cost of capital is 15%, would you support the plant managers proposal. State your assumptions that you need to make.
I know the answers are supposed to be below, but I cannot figure out how to get those in excel.
NPV of purchase = -1,304,880
NPV of make = -1,118,328
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