Question

P8-24 (similar to) Question Help Billingham Packaging is considering expanding its production capacity by purchasing a new machine. the XC-750. The cost of the XC-750 is $2.69 million. Unfortunately, installing this machine vill take several months and will partially disrupt production The firm has just completed a $46,000 feasibility study to analyze the decision to buy the XC-750, resulting in the following estimates Nar .Marketing: Once the XC-750 is operational next year, the extra capacity is expected to generate $10.10 milion per year in aditional sales. which will continue for the ten-year ie of the Las "Operatons The disruption caused by the installation wil decrease sales by $4 99 million this year. As with Bligham's existing products, he cost of goods for the products produced by Cur increased production will also require increased inventory on hand of $1.06 milion during the life of the project, including year 0 and depleted in year 10 A *Ac our t : The XC 750 will be depreciated va the straight-line method over the ten-year life of he machine The firm expects receivables from the new sales to be 16% of revenues and machine. the XC-750 is expected to be 68% of their sale price The . Human Resources: The expansion will require additional sales and administrative personnel at a cost of $1.95 million per year payables to be 10% of the cost of goods sold. Billingham's 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 aorooriate cost of capital for the expansion is 97%.. comoute the NPV of the ourchase- a. Determine the incremental earnings from the purchase of the XC-750 城: Calculate the incremental earnings from the purchase of the XC-750 below (Round to the nearest dollar.) Incremental Earnings Year Sales Revenues Cost of Goods Sold S, G, and A Expenses Depreciation EBIT Taxes at 35% Unlevered Net Income OK This Copyrig