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in years Disposal value in 5 years Life production - number of cans Annual production or purchase needs Number of workers needed Annual hours to be worked per employee Earnings per hour for employees Annual health benefits per employee Other annual benefits per employee-% of wages Cost of raw materials per can Other variable production costs per can Costs to purchase cans - per can Required rate of return Tax rate Cost to produce Annual cost of direct material: Need of 1,100,000 cans per year Annual cost of direct labor for new employees: Wages Health benefits Other benefits Total wages and benefits Other variable production costs Total annual production costs Annual cost to purchase cans
Part 1 Cash flows over the life of the project Before Tax Amount $72,540 32,000
$200,000 5 $40,000 5,500,000 1,100,000 3 2,000 $12 $2,500 18% $0.25 $0.05 $0.45 12% 35% Make
$ $ $ $ $ $ $ 275,000 72,000 7,500 12,960 92,460 55,000 422,460
Accounting income as result of decreased costs Annual cash savings (before tax effect) Less Depreciation Before tax income Tax at 35% rate After tax income
$ $ $ $ $
Cost of machine Annual cash savings Tax savings due to depreciation Disposal value Net Present Value
0 1-5 1-5 5
Cost of machine Year 1 inflow Year 2 inflow Year 3 inflow Year 4 inflow Year 5 inflow
0 1 0 0 0 0
Purchase
$ 495,000
Tax impact
0.65 0.35
$47,151
$11,200 $58,351
years
Tax %
Factor
Present Value
$ $ $