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(Solution) - Comet Company is considering purchasing a new machine to be

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Comet Company is considering purchasing a new machine to be used to manufacture a new product, called Techmet, which will sell for $12 a unit. Variable manufacturing cost is expected to be $8 for each unit of Techmet manufactured, and variable marketing cost is expected to be $1 for each unit sold. The machine being considered will cost $150,000 and can produce a maximum of 10,000 units a year. Although the machine will probably last 15 years, management believes that the product's life cycle will be only 10 years. The salvage value of the new machine at the end of the product's 10-year life cycle is expected to be $20,000. Management does not believe the machine can be used to manufacture any of the company's other products. Sales expected during the products life cycle are as follows:
Year Sales in Units of Product
1 ..................................... 6,000
2 ..................................... 8,000
3 ..................................... 10,000
4 ..................................... 10,000
5 ..................................... 10,000
6 ..................................... 10,000
7 ..................................... 10,000
8 ..................................... 8,000
9 ..................................... 6,000
10 ..................................... 4,000
Required:
Compute the pretax adjusted net cash inflow expected from the capital expenditure proposal for each year; and, ignoring the effects of income taxes on cash flows, determine the excess of cash inflows from all sources over the cost of the machine.

 







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This question was answered on: Jul 11, 2017

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