What is the net present value of the decision

Reference no: EM13877429

Could Someone help me answering the following question please?

I also need you to show me the steps to get the answers. For PV and NPV values, please use and show the formulas using the Excel formula.

Question:

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 $2 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 $250,000 and would be obsolete after 10 years. This investment could be depreciated to zero for tax purposes using a 10-year straight-line depreciation schedule. The plant manager estimates that the operation would require $50,000 of inventory and other working capital upfront (year 0), but argues that this sum can be ignored because it is recoverable at the end of the 10 years. Expected proceeds from scrapping the machinery after 10 years are $20,000.
If the company pays tax at a rate of 35% 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?

Reference no: EM13877429

Questions Cloud

Should criminologists be permitted to conduct replications : Should criminologists be permitted to conduct replications of Zimbardo's prison simulation

Set up a production plan that minimizes cost : Assuming that back orders are not permitted, set up a production plan that minimizes cost using the transportation method.

What price the demand elasticity is -0.8 : The demand function for a good is given by Q = 400 - 25P - 0.4P2 , At what price the demand elasticity is -0.8?

How can directors best fulfill their duty to act : Who should have the power to accept or reject a tender offer? Why? How can directors best fulfill their duty to act in the interest of their shareholders?

What is the net present value of the decision : 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 $2 a chain. The plant manager believes that it would be cheaper to make the..

Explain a dc motor and a magnetic levitation system : With the help of two examples, Explain a DC motor and a magnetic levitation system Explain the use of MATLAB and Simulink for modeling and analysis.

Achieve an understanding of the theoretical : Objective: Achieve an understanding of the theoretical. For this research paper, you are to choose either 1) a psychological state (for example, bi-polar disorder, panic attacks, or the state of being unconscious) or 2) a theory (for example, Evol..

What is the relationship between these two goods : Consider the demand function for a good given as Qd = 150 + 4I - 0.2P2 - 5P1 where income I is in $1,000 and P1 is the price of a related good- What is the relationship between these two goods?

Microstructural products of eutectoid iron-carbon : Name the microstructural products of eutectoid iron-carbon alloy (0.76 wt% C) specimens that are first completely transformed to austenite, then cooled to room temperature at the following rates:

User Account

All Pages