Clark Paint

In: Business and Management

Submitted By faizullah83
Words 316
Pages 2
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 | | | | | | | | | | | | | | | Part 2 | | | | | | | | Payback period | | | | | | | | | | | | | | | | Payback period = Initial Investment/Annual…...

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