What will be the current dollar cost of labour for in-house

Assignment Help Financial Management

Reference no: EM131962854

Johnson Products now buys a certain part for its chain saws. The managers are considering the production of the part in-house. They can install a production system that would have a life of five years with no salvage value. They believe that over the next five years the real price of purchased parts will remain fixed.

They expect the real price of labour and other inputs to production to rise over the next five years. Further information about the situation is in the table below.

Annual cost of purchase ($/year)	750000
Expected real change in cost of purchase	0%
Expected real change in labour cost	4%
Expected real change in other operating costs	2%
Labour cost/unit (first year of operation) ($)	10.5
Other operating cost/unit (first year of operation) ($)	9
In-house first cost($)	200000
Use rate (units/year)	25000
Current dollar MARR	20%
Study period (years)	5

1. Assume inflation is 2 percent per year in the first year of operation. What will be the current dollar cost of labour for in-house production in the second year?

2. Assume inflation is 2 percent per year in the first two years of operation. What will be the current dollar cost of other operating inputs for in-house production third year?

3. Assume that inflation averages 2 percent per year over the five-year life of the project. What is the present worth of costs for purchase and for in-house production?

Reference no: EM131962854

Questions Cloud

What is the present value of four-year ordinary annuity : What's the present value of a 4-year ordinary annuity of $2,750 per year plus an additional $2,500 at the end of Year 4 if the interest rate is 6.5%?

Determine the present value of the life- cycle cost : Assuming a discount rate of 4.00 percent, determine the present value of the life- cycle cost of a proposed five-mile long roadway.

Compute the cost of common equity : Cost of Common Equity and WACC Palencia Paints Corporation has a target capital structure of 45% debt and 55% common equity, with no preferred stock.

Automobile insurance coverage : Becky Fenton has 35/50/20 automobile insurance coverage. how much of this judgment would the insurance cover?

What will be the current dollar cost of labour for in-house : Assume inflation is 2 percent per year in the first year of operation. What will be the current dollar cost of labour for in-house production in the second year

Conduct the cost-benefit analysis : The cost-benefit analysis should include one of the following course-related topics: quality, patient safety, risk management, regulatory standards, compliance.

Find the value of the stock at the end of year three : Find the value of the stock at the end of year 3. If dividends are expected to grow at a 10% rate indefinitely, find the value of the stock.

Implement during the hiring process : Provide examples of a biblical perspective organizations can implement during the hiring process?

Thoughts with ethical theory and examples : Support your thoughts with ethical theory and examples. Use our library for added research if needed.

User Account

All Pages