# AC505 course project

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AC505 course project
ACCT505 Part B Capital Budgeting problem Clark Paints Data: Cost of new equipment \$200,000 Expected life of equipment in years 5 Disposal value in 5 years \$40,000 Life production - number of cans 5,500,000 Annual production or purchase needs 1,100,000 Initial training costs 0 Number of workers needed 3 Annual hours to be worked per employee 2,000 Earnings per hour for employees \$12 Annual health benefits per employee \$2,500 Other annual benefits per employee-% of wages 18% Cost of raw materials per can \$0.25 Other variable production costs per can \$0.05 Costs to purchase cans - per can \$0.45 Required rate of return 12% Tax rate 35% Make Purchase
Cost to produce Annual cost of direct material: Need of 1,100,000 cans per year \$330,000 Annual cost of direct labor for new employees: Wages 72,000 Health benefits 7,500 Other benefits 12,960 Total wages and benefits 92,460 Other variable production costs Total annual production costs \$422,460 Annual cost to purchase cans \$495,000

Part 1 Cash flows over the life of the project Before Tax After Tax Item Amount Amount Annual cash savings \$72,540 0.65 \$47,151 Tax savings due to depreciation 32,000 0.35 \$11,200 Total annual cash flow \$58,351

Part 2 Payback Period

200,000/58,351 3.4 Years Part 3 Annual rate of return Accounting income as result of decreased costs Annual cash savings \$72,540 Less Depreciation (32,000) Before tax income 40,540 Tax at 35% rate (14,189) After tax income \$26,351 26,351/200,000

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ACCT505 Part B Capital Budgeting problem Clark Paints, Inc. Data: Cost of new equipment \$200,000 Expected life of equipment in years 5 Disposal value in 5 years \$40,000 Life production - number of cans 5,500,000 Annual production or purchase needs 1,100,000 Initial training costs 0 Number of workers needed 3 Annual hours to be worked per employee 2,000 Earnings per hour for employees \$12.00 Annual health benefits per employee \$2,500 Other annual benefits per employee-% of wages 18% Cost of raw materials per can \$0.25 Other variable production costs per can \$0.05 Costs to purchase cans - per can \$0.45 Required rate of return 12% Tax rate 35% Make Purchase Cost to produce Annual cost of direct material: Need of 1,100,000 cans per year \$275,000 Annual cost of direct labor for new employees: Wages 72,000 Health benefits 7,500…

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Other annual benefits per employee-% of wages 18% Cost of raw materials per can 0.25 Other variable production costs per can 0.05 Costs to purchase cans - per can 0.45 Required rate of return 12% Tax rate 35% Make Purchase Cost to produce Annual cost of direct material: Need of 1,100,000 cans per year \$275,000 Annual cost of direct labor for new employees: Wages 72,000 Health benefits 7,500 Other benefits 12,960 Total wages and benefits 92,460 Other variable production costs 55,000 Total annual production costs \$422,460 Annual cost to purchase cans \$495,000 (72,540) Part 1 Cash flows over the life of the project Before Tax After Tax Item Amount Amount Annual cash savings \$72,540 65% \$47,151 Tax savings due to depreciation 32,000 35% \$11,200 Total annual cash flow 104,540 \$58,351 Part 2 Payback Period \$200,000/40,000 5 Years Part 3 Annual rate of return Accounting income as result of decreased costs Annual cash savings \$104,540 Less Depreciation -32,000…

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