oying With o its existing product osts are estimated at $2.50 per unit, incremen
ID: 2431990 • Letter: O
Question
oying With o its existing product osts are estimated at $2.50 per unit, incremental fixed manufacturing costs dditional selling and general expenses related to the dinosaurs at $59,000 annually Nature wants to take advantage of children's current fascination with dinosaurs by adding several scale-model dinosaurs line. Annual sales of the dinosaurs are estimated at 80,000 units at a price of $6 per unit. Variable manufacturing excluding depreciation) at $47000 annually, and o manufacture the dinosaurs, the company must invest $350,000 in design molds and special equipment. Since toy fads wane in popularity rather quickly, Toying With Nature anticipates the special equipment will have a three-year service life with only a $20,000 salvage value. Depreciation will be computed on a straight-line basis. All revenue and expenses received or paid in cash. The company's combined federal and state income tax rate is 40 percent. other than depreciation will be Required: a. Prepare a schedule showing the estimated increase in annual net income from the planned manufacture and sale of dinosaur toys. b. Compute the annual net cash flows expected from this project. c. Compute the following. Assume discounted at an annual rate of 15 percent. Use Exhibits 26-3 and 26-4 where necessary Complete this question by entering your answers in the tabs below. Required A Required BRequired C Compute the annual net cash flows expêcted from this project. I net cash flow Required A Required C>Explanation / Answer
(a)
Annual depreciation of equipment = (Cost of equipment - Scrap value)/Life of equipment
= (350,000 - 20,000)/3
= $110,000
Income statement
Hence, estimated increase in annual net income from the planned manufacture and sale of toys will be $38,400.
(b)
Annual cash inflow = Profit after tax + Depreciation
= 38,400 + 110,000
= $148,400
(c)
Part c of the question is written as: Compute the following assuming discount rate to be 15%. But what is to be computed, has not been mentioned in the question. Hence, it cannot be attempted.
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Sales (80,000 x 6) 480,000 Less: Variable cost (80,000 x 2.5) - 200,000 Contribution 280,000 Less: Fixed costs Fixed manufacturing costs - 47,000 Depreciation - 110,000 Selling and general expenses - 59,000 Profit before tax 64,000 Less: Income tax - 25,600 Profit after tax 38,400Related Questions
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