TopCap Co. is evaluating the purchase of another sewing machine
that will be used to manufacture sport caps. The invoice price of
the machine is $122,500. In addition, delivery and installation
costs will total $4,000. The machine has the capacity to produce
12,000 dozen caps per year. Sales are forecast to increase
gradually, and production volumes for each of the five years of the
machine's life are expected to be as follows: Use Table 6-4.
(Use appropriate factor(s) from the tables provided. Round
the PV factors to 4 decimals.)
2019 | 3,600 | dozen |
2020 | 5,600 | dozen |
2021 | 8,500 | dozen |
2022 | 11,300 | dozen |
2023 | 12,000 | dozen |
The caps have a contribution margin of $10.00 per dozen. Fixed
costs associated with the additional production (other than
depreciation expense) will be negligible. Salvage value and the
investment in working capital should be ignored. TopCap Co.'s cost
of capital for this capacity expansion has been set at
10%.
Required:
The caps have a contribution margin of $5.00 per dozen. Fixed costs
associated with the additional production (other than depreciation
expense) will be negligible. Salvage value and the investment in
working capital should be ignored. TopCap Co.'s cost of capital for
this capacity expansion has been set at 16%.
Required:
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