Formulas Managerial Accounting

One possibility currently being examined is to make the paint cans instead of purchasing them. The e$40,000, and it would be able to produce 5,500,000 cans over the life of the machinery. The productibe needed for each of the next five years. The company would hire three new employees. These threyear and earning $12.00 per hour. They would also receive the same benefits as other production emestimated that the raw materials will cost 25¢ per can and that other variable costs would be 5¢ per cadditional fixed costs would be incurred if this proposal is accepted. It is expected that cans would cominimum rate of return (hurdle rate) has been determined to be 12% for all new projects, and the curr for a gallon of paint, as well as the number of units sold, will not be affected by this decision. The unitequipment is purchased. Required: 1. Based on the above information and using Excel, calculate thecash flows over the expected life of the equipment o Payback period o Annual rate of return o Net pre

Cost of new equipment 200000

Disposal value 40000

Total Production for Cans 5500000

Annual production or purchase needs 1100000

Salary for Employees (3*(2000*12*1.18 + 2500) 92460

Cost of raw materials per can 25¢

Other variable production costs per can 5¢

Costs to purchase one can 45¢

Required rate of return 12.00%

Tax rate 35.00%

Working Note 1

Make Vs. Buy Make Buy

Purchase price 495000

Variable Cost 330000

Employee Salary 92460

Total Cash Cost 422460 495000

Annual Cash Saving (Before Tax) 72540

Annual Cash Saving (After Tax) 47151

Working Note 2

Annual Depreciation = (200000-40000)/5 = $32000

Tax Saving Due to Depreciation = 32000*.35 = 11200

Part 1

Annual cash flows over the expected life of the equipment

Annual Cash Saving (Make vs. Buy ) 47151

Tax Saving Due to Depreciation 11200

Annual Cash Flow $58,351.00

Payback period

Payback period = Initial Investment/Annual Cash Saving...