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SUPERIOR MANUFACTURING PROJECT. DATA: Forecasted Sales – Year 1; $950,000
Year 2 & On; $1,500,000 Direct Costs (including labor ...
... The payback period is less than the 3 years, then the project fits the limit policy
of Superior Manufacturing, then the project is acceptable by this criterion ...
... Business, Financial Markets and Services Year 4 Superior Manufacturing is thinking
of ... a statement showing the incremental cash flows for this project over an 8 ...
Superior Manufacturing Company. Q1. ... Loss -2262 -7195 -4933 According to above, Superior
will suffer ... more loss of $4,933,000 if it drop project 103.Therefore ...
... The payback period is less than the 3 years, then the project fits the limit policy
of Superior Manufacturing, then the project is acceptable by this criterion ...
Submitted by ashoffner on September 22, 2007
Category: Business
Words: 530 | Pages: 3
Views: 178
Popularity Rank: 68,584
Average Member Grade: N/A (Add a Comment / Grade this Paper)
DATA:
Forecasted Sales – Year 1; $950,000 Year 2 & On; $1,500,000
Direct Costs (including labor and materials) – 55% of sales
Indirect Incremental Costs - $80,000 per year
New Plant - $1,000,000
Depreciation of new plant – 5 year straight line
Net investment in Inventory & Receivables - $200,000
Marginal Tax Rate – 35%
Capital Costs – 10%
Step 1(statement): (Gitman, 2006):
Calculation of Incremental Cash Flows for Superior Manufacturing's Proposed Project
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
Revenue $950,000 $1,500,000 $1,500,000 $1,500,000 $1,500,000 $1,500,000 $1,500,000 $1,500,000
Direct Costs (55%) * $522,500 $825,000 $825,000 $825,000 $825,000 $825,000 $825,000 $825,000
Indirect Costs $80,000 $80,000 $80,000 $80,000 $80,000 $80,000 $80,000 $80,000
Depreciation * $200,000 $200,000 $200,000 $200,000 $200,000 0 0 0
Earnings before interest & taxes * $147,500 $395,000 $395,000 $395,000 $395,000 $595,000 $595,000 $595,000
Taxes (35%) * $51,625 $138,250 $138,250 $138,250 $138,250 $208,250 $208,250 $208,250
Depreciation * $200,000 $200,000 $200,000 $200,000 $200,000 0 0 0
Net Incremental Cash Flow * $295,875 $456,750 $456,750 $456,750 $456,750 $386,750 $386,750 $386,750
* Depreciation was figured by taking the 1M that is needed for a new plant and divided it into 5 years.
* EBIT was figured by subtracting direct costs, indirect costs, and deprecation from the revenue.
* Taxes were figured by taking the EBIT and multiplying it by 35%.
* Net Incremental Cash flow was figured by subtracting taxes from EBIT then adding depreciation.
* Direct costs were figured by taking the revenue and multiplying it by 55%.
Step...
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