Questions 1 & 2 ask for cash flows only, no present values. Since this problem i
ID: 2569859 • Letter: Q
Question
Questions 1 & 2 ask for cash flows only, no present values. Since this problem is a capital budgeting problem, they are not worth any points, and you have unlimited tries. Questions 3 & 4 require that you use the correct cash flows from 1 and 2 to determine the net present values of the two alternatives. You should use the present value tables in the Coursepack. The Brisbane Manufacturing Company produces a single model of a CD player. Each player is sold for $190 with a resulting contribution margin of $72. 1,540 of them are detected in the Brisbane's management is considering a change in its quality control system. Currently, Brisbane spends $41,000 a year to inspect the CD players. An average of 2,200 units turn out to be defective inspection process and are repaired for 80. If a defective CD player is not identified in the inspection process, the customer who receives it is given a full refund of the purchase price. The proposed quality control system involves the purchase of an x-ray machine for $180,000. The machine would last for five years and would have salvage value at that time of $20,000. Brisbane would also spend $600,000 immediately to train workers to better detect and repair defective units. Annual inspection costs would increase by $24,000. This new control system would reduce the number of defective units to 400 per year. 350 of these defective units would be detected and repaired at a cost of $42 per unit. Customers who still received defective players would be given a refund equal to one-and-a-half times the purchase price Questions 1 & 2 [o points; unlimited tries] 1. What is the Year 3 cash flow if Brisbane keeps using its current system? Sabmt Answer Tries 0/99 2. What is the Year 3 cash flow if Brisbane replaces its current system? Sabmit Answer Tries o/99 Questions 3 &4 [5 points each; 5 tries each] 3. Assuming a discount rate of 6%, what is the net present value if Brisbane keeps using its current system? Submit A1swer Tries o/5 4. Assuming a discount rate of 6%, what is the net present value if Brisbane replaces its current system? Submit Anewer Tries 0/5Explanation / Answer
1. Year 3 cash outflow under current system:
2. Year 3 cash flow under new system:
3. Present value of all future cash outflows at 289600@6%= 289600/6% = 4 826 667
4. Npv under new system:
Quality control cost 41000 Repair of 1540 units@75 123200 Refund of 660 units @190 125400 Total cash flow 289600Related Questions
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