A bicycle manufacturer currently produces 280 comma 000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $ 2.10 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $ 1.50 per chain. The necessary machinery would cost $ 269 comma 000 and would be obsolete after ten years. This investment could be depreciated to zero for tax purposes using a ten-year straight-line depreciation schedule. The plant manager estimates that the operation would require $ 26 comma 000 of inventory and other working capital upfront (year 0), but argues that this sum can be ignored since it is recoverable at the end of the ten years. Expected proceeds from scrapping the machinery after ten years are $ 20 comma 175. If the company pays tax at a rate of 20 % and the opportunity cost of capital is 15 %, what is the net present value of the decision to produce the chains in-house instead of purchasing them from the supplier?
Project the annual free cash flows (FCF) of buying the chains. The annual free cash flows for years 1 to 10 of buying the chains is $ ?. (Round to the nearest dollar. Enter a free cash outflow as a negative number.)
Compute the NPV of buying the chains from the FCF. The NPV of buying the chains from the FCF is $ ?. (Round to the nearest dollar. Enter a negative NPV as a negative number.)
Compute the initial FCF of producing the chains. The initial FCF of producing the chains is $ ?. (Round to the nearest dollar. Enter a free cash outflow as a negative number.)
Compute the FCF in years 1 through 9 of producing the chains. The FCF in years 1 through 9 of producing the chains is $ ?. (Round to the nearest dollar. Enter a free cash outflow as a negative number.)
Compute the FCF in year 10 of producing the chains. The FCF in year 10 of producing the chains is $ ?. (Round to the nearest dollar. Enter a free cash outflow as a negative number.)
Compute the NPV of producing the chains from the FCF. The NPV of producing the chains from the FCF is $ ?. (Round to the nearest dollar. Enter a negative NPV as a negative number.)
Compute the difference between the net present values found above. The net present value of producing the chains in-house instead of purchasing them from the supplier is $ ?. (Round to the nearest dollar.)
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A bicycle manufacturer currently produces 280 comma 000 units a year and expects output levels to...
A bicycle manufacturer currently produces 312,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $2.10 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $1.60 per chain. The necessary machinery would cost $243,000 and would be obsolete after ten years. This investment could be depreciated...
A bicycle manufacturer currently produces 352000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $ 2.10 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $ 1.50 per chain. The necessary machinery would cost $ 210000 and would be obsolete after ten years. This investment...
. A bicycle manufacturer currently produces 298,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $1.90 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $1.50 per chain. The necessary machinery would cost $292,000 and would be obsolete after 10 years. This investment could be...
4. Capital budgeting A bicycle manufacturer currently produces 300,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $1.90 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $1.50 per chain. The necessary machinery would cost $292,000 and would be obsolete after 10 years. This investment could...
A bicycle manufacturer currently produces 300,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier for $2 per chain. The plant manager believes their direct in-house productions costs to make their own chains is $1.50 per chain. Machinery to manufacture would cost $250,000 and would be obsolete in 10 years. They would use straight-line depreciation for tax purposes to $0 and then can be sold for scrap for $20,000....
10) Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no trans fats. The firm expects that sales of the new pizza will be $21 million per year. While many of these sales will be to new customers, Pisa Pizza estimates that 45% will come from customers who switch to the new, healthier pizza instead of buying the original version.?? a. Assume customers will spend...
Beryl's Iced Tea currently rents a bottling machine for $ 52 comma 000 per year, including all maintenance expenses. It is considering purchasing a machine instead and is comparing two options: a. Purchase the machine it is currently renting for $ 160 comma 000. This machine will require $ 23 comma 000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $ 250 comma 000. This machine will require $ 18 comma 000 per year...
Beryl's Iced Tea currently rents a bottling machine for $ 55 comma 000$55,000 per year, including all maintenance expenses. It is considering purchasing a machine instead, and is comparing two options: A. Purchase the machine it is currently renting for $ 155 comma 000$155,000. This machine will require $ 21 comma 000$21,000 per year in ongoing maintenance expenses. B. Purchase a new, more advanced machine for $ 260 comma 000$260,000. This machine will require $ 15 comma 000$15,000 per year...
One year ago, your company purchased a machine used in manufacturing for $ 95 comma 000. You have learned that a new machine is available that offers many advantages; you can purchase it for $ 160 comma 000 today. It will be depreciated on a straight-line basis over ten years, after which it has no salvage value. You expect that the new machine will contribute EBITDA (earnings before interest, taxes, depreciation, and amortization) of $ 40 comma 000 per year...
One year ago, your company purchased a machine used in manufacturing for $ 95 comma 000. You have learned that a new machine is available that offers many advantages; you can purchase it for $ 160 comma 000 today. It will be depreciated on a straight-line basis over ten years, after which it has no salvage value. You expect that the new machine will contribute EBITDA (earnings before interest, taxes, depreciation, and amortization) of $ 35 comma 000 per year...