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A company purchases a component, which is critical in the production process, from an international supplier. Recently, quality problems with this component have increased. For this reason, managers of the company are considering of producing this part in-house. The economic life of the new production system will be 8 years. The savings and expenditures related to the new production system are given below. The MARR is 15%. According to the information, answer the questions from 8 to 9. Capital expenditures (Investment costs): Building: 500,000 TL Machines and equipment: 2,200,000 TL The annual saving from material and quality control: 5,000,000 TL Annual operating cost: 1,500,000 TL Annual income tax: 800,000 TL Salvage value: 1,500,000 TL 8. What is the discounted payback period of the new production system? A.Less than 1 year       B.1 year         C.between 1 and 2 years     D.between 2 and 3 years 9. What is the net present worth of the new production system? A.9,415,000 TL    B.9,906,120 TL       C.12,115,770      D.18,900,000 TL

A company purchases a component, which is critical in the production process, from an international supplier. Recently, quality problems with this component have increased. For this reason, managers of the company are considering of producing this part in-house. The economic life of the new production system will be 8 years. The savings and expenditures related to the new production system are given below. The MARR is 15%. According to the information, answer the questions from 8 to 9. Capital expenditures (Investment costs): Building: 500,000 TL Machines and equipment: 2,200,000 TL The annual saving from material and quality control: 5,000,000 TL Annual operating cost: 1,500,000 TL Annual income tax: 800,000 TL Salvage value: 1,500,000 TL 8. What is the discounted payback period of the new production system? A.Less than 1 year       B.1 year         C.between 1 and 2 years     D.between 2 and 3 years 9. What is the net present worth of the new production system? A.9,415,000 TL    B.9,906,120 TL       C.12,115,770      D.18,900,000 TL

Financial And Managerial Accounting
Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter26: Capital Investment Analysis
Section: Chapter Questions
Problem 5MAD: Home Garden Inc. is considering the construction of a distribution warehouse in West Virginia to...
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A company purchases a component, which is critical in the production process, from an international supplier. Recently, quality problems with this component have increased. For this reason, managers of the company are considering of producing this part in-house. The economic life of the new production system will be 8 years. The savings and expenditures related to the new production system are given below. The MARR is 15%. According to the information, answer the questions from 8 to 9.

Capital expenditures (Investment costs):

  • Building: 500,000 TL
  • Machines and equipment: 2,200,000 TL

The annual saving from material and quality control: 5,000,000 TL

Annual operating cost: 1,500,000 TL

Annual income tax: 800,000 TL

Salvage value: 1,500,000 TL

8. What is the discounted payback period of the new production system?

  • A.Less than 1 year      
  • B.1 year        
  • C.between 1 and 2 years    
  • D.between 2 and 3 years

9. What is the net present worth of the new production system?

  • A.9,415,000 TL   
  • B.9,906,120 TL      
  • C.12,115,770     
  • D.18,900,000 TL
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