Billingham Packaging is considering expanding its production capacity by purchasing a new machine, the XC-750. The cost of the XC-750 is $ 2.84 million. Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a $ 47000 feasibility study to analyze the decision to buy the XC-750, resulting in the following estimates:
bullet Marketing: Once the XC-750 is operational next year, the extra capacity is expected to generate $ 10.00 million per year in additional sales, which will continue for the 10-year life of the machine.
bullet Operations: The disruption caused by the installation will decrease sales by $ 5.01 million this year. As with Billingham’s existing products, the cost of goods for the products produced by the XC-750 is expected to be 75 % of their sale price. The increased production will also require an increased inventory on hand of $ 1.17 million during the life of the project, including year 0.
bullet Human Resources: The expansion will require additional sales and administrative personnel at a cost of $ 2.02 million per year.
bullet 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 16 % of revenues and payables to be 11 % 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.
Calculate the incremental earnings from the purchase of the XC-750 below (with vs. without XC?750): (Round to the nearest dollar.)
|Cost of Goods Sold||
|S, G, and A Expenses||
|Taxes at 35%||
|Unlevered Net Income||
b. Determine the free cash flow from the purchase of the XC-750.
Calculate the free cash flow from the purchase of the XC-750 below (with vs. without XC?750): (Note: the change in net working capital for year 0 is equal to the sum of the change in accounts receivable due to the decrease in sales, the change in inventory due to the increase in inventory starting in year 0, and the change in accounts payable due to the decrease in cost of goods sold.) (Round to the nearest dollar.)
|Unlevered Net Income||$||$||$||$||$|
|Change on Net Working Capital||$||$||$||$||$|
|Free cash flow||$||$||$||$||$|
c. If the appropriate cost of capital for the expansion is 10.3 %, compute the NPV of the purchase.
The NPV of the purchase is $______. (Round to the nearest dollar.)
d. While the expected new sales will be $ 10.00 million per year from the expansion, estimates range from $ 8.10 million to $ 11.90 million. What is the NPV in the worst case? In the best case?
The NPV of the purchase for sales of $ 8.10 million is $______. (Round to the nearest dollar.)
The NPV of the purchase for sales of $ 11.90 million is $_______. (Round to the nearest dollar.)
e. What is the break-even level of new sales from the expansion?
The break-even level of new sales from the expansion is $_____. (Round to the nearest dollar.)
What is the breakeven level for the cost of goods sold?
The breakeven level for the cost of goods sold is _____% of sales. (Round to two decimal places.)
f. Billingham could instead purchase the XC-900, which offers even greater capacity. The cost of the XC-900 is $ 3.92 million. The extra capacity would not be useful in the first two years of operation but would allow for additional sales in years 3 through 10.
What level of additional sales (above the $ 10.00 million expected for the XC-750) per year in those years would justify purchasing the larger machine?
The additional sales would need to be $______. (Round to the nearest dollar.)Get Finance homework help today
Why Choose Us
At Myhomeworkwriters.com, we always aim at 100% customer satisfaction. As such, we never compromise the quality of our essay services. Our essay helpers ensure that they craft each paper carefully to match the requirements in the instruction form.
Professional Academic Writers
With Myhomeworkwriters.com, every student is guaranteed high-quality, professionally written papers. We ensure that we hire individuals with high academic qualifications who can maintain our quality policy. These writers undergo further training to sharpen their writing skills, making them more competent in writing academic papers.
Our company maintains a fair pricing system for all paper writing services to ensure affordability. Our pricing system generates quotations based on the properties of individual papers.
MyHomeworkWriters guarantees all students of swift delivery of papers. We understand that time is an essential factor in the academic world. Therefore, we ensure that we deliver the paper on or before the agreed date to give students ample time for reviewing.
Myhomeworkwriters.com maintains a zero-plagiarism policy. As such, MyHomeworkWriters ensure that they use the students’ instructions to deliver plagiarism-free papers. We are very keen on avoiding any chance of similarities with previous papers.
Customer Support 24/7
Our customer support works around the clock to provide students with assistance or guidance at any time of the day. Students can always communicate with us through our live chat system or our email and receive instant responses. Feel free to contact us via the Chat window or support email: firstname.lastname@example.org.
Try it now!
How it works?
Follow these simple steps to get your paper done
Place your order
Fill in the order form and provide all details of your assignment.
Proceed with the payment
Choose the payment system that suits you most.
Receive the final file
Once your paper is ready, we will email it to you.
Our writers complete papers strictly according to your instructions and needs, no matter what university, college, or high school you study in.
Our Essay Writing Services
MyHomeworkWriters holds a reputation for being a platform that provides high-quality academic services. All you need to do is provide us with all the necessary requirements and wait for quality results.
At MyHomeworkWriters, we have highly qualified academic gurus who will offer great assistance towards completing your essays. Our essay help service providers are well-versed with all the aspects of developing high-quality and relevant essays.
Admission and Business Papers
With Myhomeworkwriters.com, we will help you secure a position at your desired institution. Our essay writing services include the crafting of admissions papers. We will still help you climb your career ladder by helping you write the official papers that will help you secure a job. We will guide you on how to write an outstanding portfolio or resume.
Editing and Proofreading
Myhomeworkwriters.com has a professional editorial team that will help you organize your paper, paraphrase it, and eliminate any possible mistakes. Also, we will help you check on plagiarism to ensure that your final paper posses quality and originality.
My Homework Writers harbors professional academic writers from diverse academic disciplines. As such, we can develop essay help services in all academic areas. The simplicity or complexity of the paper does not affect the quality of essay writing services.