Question

Capital Expenditures Budget On August 1, 20Y4, the controller of Handy Dan Tools Inc. is planning capital expenditures for the years 2015-20Y8. The controller interviewed several Handy Dan executives to collect the necessary information for the capital expenditures budget. Excerpts of the interviews are as follows: Director of Facilities: A construction contract was signed in May 2014 for the construction of a new factory building at a contract cost of $12,000,000. The construction is scheduled to begin in 2015 and completed in 20Y6. Vice President of Manufacturing: Once the new factory building is finished, we plan to purchase $6 million in equipment in late 20Y6. I expect that an additional $900,000 will be needed early in the following year (2017) to test and install the equipment before we can begin production. If sales continue to grow, I expect we'll need to invest another half million in equipment in 20Y8. Vice President of Marketing: We have really been growing lately. I wouldn't be surprised if we need to expand the size of our new factory building in 2048 by at least 25%. Fortunately, we expect inflation to have minimal impact on construction costs over the next four years. Additionally, I would expect the cost of the expansion to be proportional to the size of the expansion. Director of Information Systems: We need to upgrade our information systems to wireless network technology. It doesn't make sense to do this until after the new factory building is completed and producing product. During 2017, once the factory is up and running, we should equip the whole facility with wireless technology. I think it would cost us $400,000 today to install the technology. However, prices have been dropping by 8% per year, so it should be less expensive at a later date. President: I am excited about our long-term prospects. My only short-term concern is financing the $6,000,000 of construction costs on the portion of the new factory building scheduled to be completed in 20Y5. Use the interview information above to prepare a capital expenditures budget for Handy Dan Tools Inc. for the years 2015-20Y8. If an amount box does not require an entry, leave it blank. Enter all amounts as positive numbers. HANDY DAN TOOLS INC. Capital Expenditures Budget For the Four Years Ending December 31, 2015-2018 2015 2046 2047 20Y8 Building Equipment Information systems Total

Answer 1

Solution:

HANDY DAN TOOLS INC
Capital Expenditures Budget
	20Y5	20Y6	20Y7	20Y8
Building	6,000,000	6,000,000		3,000,000
Equipment		6,000,000	900,000	500,000
Information Systems			311,475.2
Total	$6,000,000	$12,000,000	$1,211,475.2	$3,500,000

Information systems Expense:

August 20Y4 : $400,000

Cost after three years in 20Y7 : $400,000 * 92% * 92% * 92% = $ 311,475.2