Cash flow if brisbane keeps using its current system

Assignment Help Financial Management

Reference no: EM131893196

The Brisbane Manufacturing Company produces a single model of a CD player. Each player is sold for $207 with a resulting contribution margin of $80.

Brisbane's management is considering a change in its quality control system. Currently, Brisbane spends $38,000 a year to inspect the CD players. An average of 2,000 units turn out to be defective - 1,400 of them are detected in the inspection process and are repaired for $75. If a defective CD player is not identified in the inspection process, the customer who receives it is given a full refund of the purchase price.

The proposed quality control system involves the purchase of an x-ray machine for $190,000. The machine would last for four years and would have salvage value at that time of $21,000. Brisbane would also spend $560,000 immediately to train workers to better detect and repair defective units. Annual inspection costs would increase by $20,000. This new control system would reduce the number of defective units to 350 per year. 295 of these defective units would be detected and repaired at a cost of $49 per unit. Customers who still received defective players would be given a refund equal to one-and-a-fourth times the purchase price.

A) What is the Year 2 cash flow if Brisbane keeps using its current system?

B) What is the Year 2 cash flow if Brisbane replaces its current system?

C) Assuming a discount rate of 6%, what is the net present value if Brisbane keeps using its current system?

D) Assuming a discount rate of 6%, what is the net present value if Brisbane replaces its current system?

Reference no: EM131893196

Questions Cloud

What is problem that your regulation or innovation solves : What is the problem that your regulation or innovation solves? What is the specific regulation or innovation that you propose?

Symbiosis between the bsm model and risk-neutral analysis : Explain the symbiosis between the BSM model and Risk -Neutral analysis. Why is this important beyond deriving the Black Scholes equation ?

What is the after-tax cash flow from selling it : What is the book value of the equipment? what is the after-tax cash flow from selling it?

Expected return on the market-what must risk-free rate be : A stock has an expected return of 13.1 percent, a beta of 1.28, and the expected return on the market is 11 percent. What must the risk-free rate be?

Cash flow if brisbane keeps using its current system : What is the Year 2 cash flow if Brisbane keeps using its current system? what is the net present value if Brisbane keeps using its current system?

About home equity lines of credit : If the bank's loan guidelines state that you cannot exceed 90% LTV, how much can you borrow the customer?

The internal rate of return method : Using the internal rate of return method, evaluate this project and indicate whether it should be undertaken.

Comparing capital budgeting projects : A project's net present value (NPV) is computed by discounting the cash inflows from the project and subtracting the investment (if conventional).

What is WCEs required rate of return now : What is WCE's required rate of return? what is WCE's required rate of return now?

User Account

All Pages