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    IENG 577 Homework 3: and Payables To Be 10% of The Cost of Goods Sold. Billingham's Marginal Corporate Tax Rate Is

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    Abdu Abdoulaye
    This document provides information for a homework assignment to analyze the potential purchase of a new machine, the XC-750, by Billingham Packaging. It details estimates related to: - Marketing: $10 million in additional annual sales for 10 years from extra capacity once installed. - Operations: $5 million decrease in sales this year due to installation disruption, and 70% of sales price as cost of goods once operational. - Human Resources: $2 million annual cost for additional personnel required by expansion. - Accounting: Straight-line depreciation over 10 years, 15% of revenues as receivables and 10% of cost of goods as payables, 35% corporate tax rate.

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    IENG 577 Homework 3: and Payables To Be 10% of The Cost of Goods Sold. Billingham's Marginal Corporate Tax Rate Is

    Uploaded by

    Abdu Abdoulaye
    213 views1 page
    This document provides information for a homework assignment to analyze the potential purchase of a new machine, the XC-750, by Billingham Packaging. It details estimates related to: - Marketing: $10 million in additional annual sales for 10 years from extra capacity once installed. - Operations: $5 million decrease in sales this year due to installation disruption, and 70% of sales price as cost of goods once operational. - Human Resources: $2 million annual cost for additional personnel required by expansion. - Accounting: Straight-line depreciation over 10 years, 15% of revenues as receivables and 10% of cost of goods as payables, 35% corporate tax rate.

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    WVU_IENG 577 Homework 3

    Original Title

    Homework 3

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    This document provides information for a homework assignment to analyze the potential purchase of a new machine, the XC-750, by Billingham Packaging. It details estimates related to: - Marketing: $10 million in additional annual sales for 10 years from extra capacity once installed. - Operations: $5 million decrease in sales this year due to installation disruption, and 70% of sales price as cost of goods once operational. - Human Resources: $2 million annual cost for additional personnel required by expansion. - Accounting: Straight-line depreciation over 10 years, 15% of revenues as receivables and 10% of cost of goods as payables, 35% corporate tax rate.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    213 views1 page

    IENG 577 Homework 3: and Payables To Be 10% of The Cost of Goods Sold. Billingham's Marginal Corporate Tax Rate Is

    Uploaded by

    Abdu Abdoulaye
    This document provides information for a homework assignment to analyze the potential purchase of a new machine, the XC-750, by Billingham Packaging. It details estimates related to: - Marketing: $10 million in additional annual sales for 10 years from extra capacity once installed. - Operations: $5 million decrease in sales this year due to installation disruption, and 70% of sales price as cost of goods once operational. - Human Resources: $2 million annual cost for additional personnel required by expansion. - Accounting: Straight-line depreciation over 10 years, 15% of revenues as receivables and 10% of cost of goods as payables, 35% corporate tax rate.

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    IENG 577

    Homework 3

    Due: September 28, Monday


    Billingham Packaging is considering expanding its production capacity by purchasing a new
    machine, the XC-750. The cost of the XC-750 is $2.75 million. Unfortunately, installing this
    machine will take several months and will partially disrupt production. The firm has just
    completed a $50,000 feasibility study to analyze the decision to buy the XC-750, resulting in the
    following estimates:

    Marketing: Once the XC-750 is operating next year, the extra capacity is expected to
    generate $10 million per year in additional sales, which will continue for the 10-year life of
    the machine.
    Operations: The disruption caused by the installation will decrease sales by $5 million this
    year. Once the machine is operating next year, the cost of goods for the products produced by
    the XC-750 is expected to be 70% of their sale price. The increased production will require
    additional inventory on hand of $1 million to be added in year 0 and depleted in year 10.
    Human Resources: The expansion will require additional sales and administrative personnel
    at a cost of $2 million per year.
    Accounting: The XC-750 will be depreciated via the straight-line method over the 10-year
    life of the machine. The firm expects receivables from the new sales to be 15% of revenues
    and payables to be 10% of the cost of goods sold. Billinghams marginal corporate tax rate is
    35%.

    a. Determine the incremental earnings from the purchase of the XC-750.


    b. Determine the free cash flow from the purchase of the XC-750.
    c. If the appropriate cost of capital for the expansion is 10%, compute the NPV of the purchase.
    You can put your answers in an Excel spreadsheet, and print out the spreadsheet.

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