Compute the net present value

Assignment Help Accounting Basics

Reference no: EM132448978

Comprehensive Capital Budgeting Problem

Van Doren Corporation is considering producing a new product, Autodial. Marketing data indicate that the company will be able to sell 50,000 units per year at $30. The product will be produced in a section of an existing factory that is currently not in use.

To produce Autodial, Van Doren must buy a machine that costs $400,000. The machine has an expected life of 8 years and will have an ending residual value of $15,000. Van Doren will depreciate the machine over 8 years using the straight-line method for both tax and financial reporting purposes.

In addition to the cost of the machine, the company will incur incremental manufacturing costs of $400,000 for component parts, $440,000 for direct labor, and $225,000 of miscellaneous costs. Also, the company plans to spend $150,000 annually to advertise Autodial. Van Doren has a tax rate of 40 percent, and the company's required rate of return is 16 percent.

Compute the net present value. (Round present value factor calculations to 4 decimal places, e.g. 0.2525. Round other all calculations and the final answer to 0 decimal places, e.g. 5,250.)

Net present value $

Compute the payback period. (Round all calculations and the final answer to 2 decimal places, e.g. 25.21.)

Payback period years

Compute the accounting rate of return. (Round the final answer to 0 decimal places e.g. 25%.)

Accounting rate of return %

Question 1: Should Van Doren make the investment required to produce Autodial?

Reference no: EM132448978

Questions Cloud

Compute the effect would have on the money multiplier : What must the banks' excess reserves ratio be if the money multiplier is 10? If the banks changed their excess reserves ratio to one dollar for every $1,000

Calculate amount of johns payment over life of loan : Calculate the amount of John's payment over the life of his loan. Compare these findings if he would have taken out a fix rate loan for the same period at 6.5%.

What did you learned about managerial accounting : What did you learned about Managerial Accounting?Job order manufacturing costs and Process order manufacturing costs.How the managerial accounting helps

Explain the delhome products comprehensive problem : Explain the concept for Delhome Products Comprehensive Problem. Analyze the impact for Delhome Products Comprehensive Problem

Compute the net present value : Compute the payback period. Compute the net present value.Should Van Doren make the investment required to produce Autodial?

Determine the total noncontrolling interest : Prepare the eliminating entries required for the preparation of a consolidated statements workpaper on December 31, 2009, assuming the use of the equity method.

Discuss recommendation as the ceo regarding the alternative : Create an argument that the same goals may be achieved if the company remains a privately held entity. Provide support for your argument

What are the prime costs : If 13,750 equivalent units are produced, what is the equivalent material cost per unit? What are the conversion costs?What is the total product cost?

Determine the cost classification to the US government : Analyze your company's cost classification for pricing of the navigation system. Defend your cost classification to the U.S. government.

User Account

All Pages