Reference no: EM132881825
Problem - On January 1, 2012, the controller of Med-Tek Inc. is planning capital expenditures for the years 2012-2015. The following interviews helped the controller collect the necessary information for the capital expenditures budget:
Director of Facilities: A construction contract was signed in late 2011 for the construction of a new factory building at a contract cost of $9,000,000. The construction is scheduled to begin in 2012 and be completed in 2013.
Vice President of Manufacturing: Once the new factory building is finished, we plan to purchase $1.2 million in equipment in late 2013. I expect that an additional $150,000 will be needed early in the following year (2014) to test and install the equipment before we can begin production. If sales continue to grow, I expect we'll need to invest another $900,000 in equipment in 2015.
Vice President of Marketing: We have really been growing lately. I wouldn't be surprised if we need to expand the size of our new factory building in 2015 by at least 40%. Fortunately, we expect inflation to have minimal impact on construction costs over the next four years. Additionally, I would expect the cost of the expansion to be proportional to the size of the expansion.
Director of Information Systems: We need to upgrade our information systems to wireless network technology. It doesn't make sense to do this until after the new factory building is completed and producing product. During 2014, once the factory is up and running, we should equip the whole facility with wireless technology. I think it would cost us $1,200,000 today to install the technology. However, prices have been dropping by 25% per year, so it should be less expensive at a later date.
President: I am excited about our long-term prospects. My only short-term concern is financing the $5,500,000 of construction costs on the portion of the new factory building scheduled to be completed in 2012.
Use the interview information above to prepare a capital expenditures budget for Med-Tek Inc. for the years 2012-2015.