eworkproblems/capbudgetingfo9problemm The Brisbane Manufacturing Company produce

Question

eworkproblems/capbudgetingfo9problemm The Brisbane Manufacturing Company produces a single model of a CD player. Each player is sold for $207 with a resulting contribution margin of $80 Brisbane's management is considering a change in its quality control system. Currently, Brisbane spends $38,000 a year to inspect the CD players. An average of 2,000 units turn out to be defective 1,400 of them are detected in the inspection process and are repaired for $75. 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 $190,000. The machine would last for four years and would have salvage value at that time of $21,000. Brisbane would also spend $560,000 immediately to train workers to better detect and repair defective units. Annual inspection costs would increase by $20,000. This new control system would reduce the number of defective units to 350 per year. 295 of these defective units would be detected and repaired at a cost of $49 per unit. Customers who still received defective players would be given a refund equal to one-and-a-fourth times the purchase price. Questions 1 &2 [0 points; unlimited tries] 1. what is the Year 2 cash flow if Brisbane keeps using its current system? Submit Answer Incorrect. Tries 1/99 Previous Tries 2, what is the Year 2 cash flow if Brisbane replaces its current system? L Submit Answer Incorrect. Tries 1/99 Previous Tries Questions 3 & 4 15 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 Answer Incorrect. Tries 1/5 Previous Tries 4. Assuming a discount rate of 6%, what is the net present value if Brisbane replaces its current system? Submit Answer Tries 0/5 n what is marked as NEW Export NEW Elyssa Kaitlin Geis Reply (Tue Nov 7 08:13:23 pm 2017 (EST))

Explanation / Answer

1. Year 2 cash flows if the same system is kept are $ -267,200

3. NPV =

P*(1-1.06^-5)/ 0.06

= -267200* (1-0.7473)/0.06

= ($1,125,543.60)

WORKINGS IF SAME SYSTEM IS KEPT

2. Year 2 cash flows if the system is replaced = -$86686.30

4. NPV at 6% discounting =

$              (1,319,461.60)

WORKINGS AS FOLLOWS

3.

Inspection cost -38000 Repair cost=1400*75 -105000 Refund= 600*207 -124200 Total annual cash flow -267200

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