Maurice Tutor

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Teaching Since: May 2017
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Questions Answered: 66690
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Education

  • MCS,PHD
    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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  • Professor
    Phoniex University
    Oct-2001 - Nov-2016

Category > Accounting Posted 22 Jul 2017 My Price 13.00

recreational pedal boats

A company that manufactures recreational pedal boats has approached Mike Cichanowski to ask if he would be interested in using Current Designs’ rotomold expertise and equipment to produce some of the pedal boat components. Mike is intrigued by the idea and thinks it would be an interesting way of complementing the present product line.

One of Mike"s hesitations about the proposal is that the pedal boats are a different shape than the kayaks that Current Designs produces. As a result, the company would need to buy an additional rotomold oven in order to produce the pedal boat components. This project clearly involves risks, and Mike wants to make sure that the returns justify the risks. In this case, since this is a new venture, Mike thinks that a 15% discount rate is appropriate to use to evaluate the project.

As an intern at Current Designs, Mike has asked you to prepare an initial evaluation of this proposal. To aid in your analysis, he has provided the following information and assumptions.

1.The new rotomold oven will have a cost of $256,000, a salvage value of $0, and an 8-year useful life. Straight-line depreciation will be used.

2.The projected revenues, costs, and results for each of the 8 years of this project are as follows.

Sales revenue Less:

  

$220,000

Manufacturing costs

$140,000

  

Depreciation

32,000

  

Shipping and administrative costs

22,000

141,000

Income before income taxes

  

26,000

Income tax expense

  

10,800

Net income

  

8 15,200

Instructions

(a)Compute the annual rate of return. (Round to two decimal places.)

(b)Compute the payback period. (Round to two decimal places.)

(c)Compute the NPV using a discount rate of 9%. (Round to nearest dollar.) Should the proposal be accepted using this discount rate?

(d)Compute the NPV using a discount rate of 15%. (Round to nearest dollar.) Should the proposal be accepted using this discount rate?

Answers

Maurice Tutor
(5)
Status NEW Posted 22 Jul 2017 07:07 PM My Price 13.00

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