Calculate the minimum annual sales, Cost Accounting

a factory operates a small canteen but its annual operation has consistently shown a loss:

                                                                                      $                       $
sales                                                                                                   100,000
cost of food & beverage                                                  50,000
salaries                                                                          60,000
the company is considering buying automatic food & drink Vending Machines at a cost $24,000 less $5,000 trade-in on the existing dining room equipment. The estimated useful life of the vending machines is ten years with no scrap value.

the vending machine company would supply the food, drink and services engineers at its own expense. However it would take all sales receipts except 10% of gross receipts to the factory. It is estimated that sales with vending machines will increase by 50% but price has to be 50% less.

the factory has to employ one attendant in the dining area at an annual cost of $6,300. Termination payments for all other canteen staff are $8,000. Determine the answer to the following quest:

1) how long is the payback period?

2) what is the NPV of the project asssuming cost of capital to be 20%

3)what is the IRR?

4) forecast sales from the vending machine is uncertain. if the factory receives only $2,500 a year for its share of gross receipts, will the project be feasible?

5) what is the minimum annual sales required to justify investment in the vending machine?

Posted Date: 3/7/2013 3:01:42 AM | Location : United States

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