Acct 505 Project Part B Essay

604 WordsSep 6, 20123 Pages
ACCT505 Part B Capital Budgeting problem Clark Paints Data: Cost of new equipment $200,000 Expected life of equipment in years 5 yrs Disposal value in 5 years $40,000 Life production - number of cans 5,500,000 Annual production or purchase needs $1,100,000 Initial training costs Number of workers needed 3 Annual hours to be worked per employee 2000 hrs Earnings per hour for employees $12 Annual health benefits per employee $2,500 Other annual benefits per employee-% of wages 18% Cost of raw materials per can 0.25 Other variable production costs per can 0.05…show more content…
Invest. Annual ROR = income aftr taxes/beg. Invest 47,151/200,000 = 23.57% Part 4 Net Present Value Before Tax After tax 12% PV Present Item Year Amount Tax % Amount Factor Value Cost of machine 0 -$200,000 -$200,000 1 -$200,000 Cost of training 0 0 0 0 0 0 Annual cash savings 1-5 72,540 65% 47,151 3.605 170 Tax savings due to depreciation 1-5 32,000 35% 11,200 3.605 40,376 Disposal value 5 40,000 0 40,000 0.567 22,680 Net Present Value $33,035 Part 5 Internal Rate of Return Before Tax After tax 18% PV Present Item Year Amount Tax % Amount Factor Value Cost of machine 0 -$200,000 -$200,000 1 -$200,000 Cost of training 0 0 0 0 0 0 Annual cash savings 1-5 72,540 65% 47,151 Tax savings due to depreciation 1-5 32,000 35% 11,200 Disposal value 5 40,000 0 40,000 Net Present Value Before Tax After tax Present Item Year Amount Tax % Amount Factor Value Cost of machine 0 Cost of training 0 Annual cash savings 1-5 Tax savings due to depreciation 1-5 Disposal value 5 Net Present Value Before Tax After tax Present Item Year Amount Tax % Amount Factor Value Cost of machine Cost of training Annual cash

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