Accounting

Here is what I have thus far:

Data:

Cost of new equipment $200,000

Expected life of equipment in years 5

Disposal value in 5 years $40,000

Life production - number of cans 5,500,000

Annual production or purchase needs 1,100,000

Number of workers needed 3

Annual hours to be worked per employee 2000

Earnings per hour for employees $12.00

Annual health benefits per employee $2,500

Other annual benefits per employee-% of wages 18%

Cost of raw materials per can $0.25

Other variable production costs per can $0.05

Costs to purchase cans - per can $0.45

Required rate of return 12%

Tax rate 35%

Cost to produce Make Purchase

Annual cost of direct material:

Need of 1,100,000 cans per year $330,000.00

Annual cost of direct labor for new employees:

Wages $72,000

Health benefits $7,500

Other benefits $12,960

Total wages and benefits $92,460

Total annual production costs $514,920

Annual cost to purchase cans $495,000

Part 1 Cash flows over the life of the project

Before Tax Tax Effect After Tax

Item Amount Amount

Annual cash savings (make vs buy)$19,920 0.65 $12,948 *Tax effect on Annual Cash Savings =1 - tax rate

Tax savings due to depreciation $32,000 0.35 $11,200 *Tax effect on Depreciation is the tax rate

Total annual cash flow $24,148.00

Part 2 Payback Period 200000/24148 8.3 Years

Part 3 Annual rate of return

Accounting income as result of decreased costs

Annual cash savings (before tax effect) $19,920

Less Depreciation $(32,000)

Before tax income $(12,080)

Tax at 35% rate $(4,228)

After tax income $(16,308)

($16308)/$200,000 = -8.15%

Part 4 Net Present Value

Before Tax After tax 10% PV Present

Item Year Amount Tax % Amount Factor Value

Cost of machine 0 $(200,000) $(200,000)

Annual cash savings 1 through 5 $19,920 0.65 $12,948

Tax savings due to depreciation 1 through 5 $32,000 0.35 $11,200

Disposal value 5 $40,000 $40,000

Net Present Value

Part 5 Internal Rate of...