Net present value of the decision to produce the chains

Assignment Help Financial Management

Reference no: EM131346554

A bicycle manufacturer currently produces 296,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $1.90 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct? in-house production costs are estimated to be only $ 1.40 per chain. The necessary machinery would cost $242,000 and would be obsolete after ten years. This investment could be depreciated to zero for tax purposes using a? ten-year straight-line depreciation schedule. The plant manager estimates that the operation would require $43,000 of inventory and other working capital upfront? (year 0), but argues that this sum can be ignored since it is recoverable at the end of the ten years. Expected proceeds from scrapping the machinery after ten years are $18,150.

If the company pays tax at a rate of 35% and the opportunity cost of capital is 15%?, what is the net present value of the decision to produce the chains? in-house instead of purchasing them from the? supplier?

Reference no: EM131346554

Questions Cloud

Compute the financial leverage percentage : The comparative financial statements prepared at December 31, 2015, for Prince Company showed the following summarized data: 2015 2014 Income statement: Sales revenue $ 191,800 * $ 167,500 Cost of goods sold 112,200 101,100. Compute the debt-to-equit..

Find expected dividend yield-expected capital gains yield : TTC has been growing at a rate of 18% per year in recent years. This same growth rate is expected to last for another 2 years (g1 = g2 = 18%). What are its expected dividend yield at this time? What is the capital gains yield at this time? Find the e..

What is the capital gains yield at this time : TTC has been growing at a rate of 18% per year in recent years. This same growth rate is expected to last for another 2 years (g1 = g2 = 18%). What are its expected dividend yield at this time? What is the capital gains yield at this time? Find the e..

Net present value of the decision to produce the chains : A bicycle manufacturer currently produces 296,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $1.90 a chain. If the company pays tax at a rate of 35% and the opportunity..

Projected cash disbursements for accounts payable : Nadine's Boutique has a 30-day accounts payable period. The firm expects quarterly sales of $3,300, $3,400, $4,600, and $4,100, respectively, for next year. The quarterly cost of goods sold is equal to 70 percent of the next quarter's sales. What is ..

Identify two or three favorable economic-political factor : Identify two or three favorable economic and political factors as to why an American-based MNC would be attracted to offering local currency debt in Mexico. Assume the MNC needs to finance a capital project in that country.

New line of golf clubs-what is the irr for project : McGilla Golf has decided to sell a new line of golf clubs. The length of this project is seven years. The company has spent $1110000 on research and development for the new clubs. The plant and equipment required will cost $28560948 and will be depre..

What is the net present value for project : McGilla Golf has decided to sell a new line of golf clubs. The length of this project is seven years. The company has spent $192572 on research and development for the new clubs. The plant and equipment required will cost $2801947 and will be depreci..

User Account

All Pages