25 Oct Based on the attached excel sheet? Do you recommend the acceptance of this proposal? Why or why not? Prepare a two-page minimum, double-spaced Word paper elaborating on and supporting you
Based on the attached excel sheet
Do you recommend the acceptance of this proposal? Why or why not?
Prepare a two-page minimum, double-spaced Word paper elaborating on and supporting your answer. Be sure to follow APA formatting, as applicable.
ELON MOTORS
| ACCT434/436 | ||||||||
| Course Project | ||||||||
| Elon Motors | ||||||||
| Project Template | ||||||||
| Elon Motors | ||||||||
| Data: | ||||||||
| Cost of new equipment | $1,570,000 | |||||||
| Expected life of equipment in years | 12 | |||||||
| Salvage Value | $70,000 | |||||||
| Life Production | 36,000 | |||||||
| Annual production or purchase needs | 300 | |||||||
| Number of workers needed | 3 | |||||||
| Annual hours to be worked per employee | 2,080 | |||||||
| Earnings per hour for employees | $25.00 | |||||||
| Health Benefits – % of Wages | 20% | |||||||
| Cost of Direct Materials | $125.00 | |||||||
| Variable Manufacturing Overhead Costs | $25.00 | |||||||
| Unit Cost to Purchase Batteries | $325.00 | |||||||
| Required rate of return | 10% | |||||||
| Tax rate | 30% | |||||||
| Make | Purchase | |||||||
| Cost to Produce | ||||||||
| Annual cost of direct material: | ||||||||
| Need – Cost direct material for of 2,500 Batteries | $375,000 | |||||||
| Annual cost of direct labor for new employees: | ||||||||
| Wages | 156,000 | |||||||
| Health benefits | 31,200 | |||||||
| Total wages and benefits | 187,200 | |||||||
| Other variable production costs | 75,000 | |||||||
| 125,000 | ||||||||
| Total annual production costs | $762,200 | |||||||
| Annual cost to purchase cans | Annual Cost to Purchase Batteries | $975,000 | ||||||
| Part 1 Cash Flows Over the Life of the Project | ||||||||
| Before Tax | Tax | After Tax | ||||||
| Item | Amount | Effect | Amount | |||||
| Annual cash savings | $337,800 | 30% | $101,340 | |||||
| Tax savings due to depreciation | 125,000 | 30% | $37,500 | |||||
| Total after-tax annual cash flow | $138,840 | |||||||
| Part 2 Payback Period | years | |||||||
| Cost of new equipment | 1,570,000 | |||||||
| divide: annual cashflow | 236,460 | 6.64 | ||||||
| Part 3 Accounting Rate of Return | ||||||||
| Accounting income as result of decreased costs | ||||||||
| Annual cash savings | $236,460 | |||||||
| Less depreciation | 125,000 | |||||||
| Before tax income | 111,460 | |||||||
| Tax at Current Rate | 33,438 | |||||||
| After tax income | $78,022 | |||||||
| Accounting Rate of Return | 4.97% | |||||||
| Part 4 Net Present Value | ||||||||
| Before Tax | After Tax | PV | Present | |||||
| Item | Year | Amount | Tax % | Amount | Factor | Value | ||
| Cost of machine | 0 | $1,570,000 | 1.000 | $1,570,000 | ||||
| Annual cash savings | 1-10 | $281,500 | 30% | 84,450 | 5.678 | 1,342,640 | ||
| Tax savings due to depreciation | 1-10 | $104,167 | 83% | 31,250 | 5.678 | 212,928 | ||
| Disposal value | 10 | $58,333 | 83% | 17,500 | 0.2655 | 13,010 | ||
| Net Present Value | $3,138,578 | |||||||
| Part 5 Internal Rate of Return and Modified Internal Rate of Return | ||||||||
| After Tax | ||||||||
| Item | Year | Amount | ||||||
| Cost of machine | 0 | $ 1,570,000 | ||||||
| Year 1 inflow | 1 | $ 236,460 | ||||||
| Year 2 inflow | 2 | $ 236,460 | ||||||
| Year 3 inflow | 3 | $ 236,460 | ||||||
| Year 4 inflow | 4 | $ 236,460 | ||||||
| Year 5 inflow | 5 | $ 236,460 | ||||||
| Year 6 7nflow | 6 | $ 236,460 | ||||||
| Year 7 inflow | 7 | $ 236,460 | ||||||
| Year 8 inflow | 8 | $ 236,460 | ||||||
| Year 9 inflow | 9 | $ 236,460 | ||||||
| Year 10 inflow | 10 | $ 236,460 | ||||||
| Internal Rate of Return | ||||||||
| Modified Internal Rate of Return | 10.36% | |||||||
| Net Present Value | $3,138,578 |
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