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ACCT_505_Course_Project_2 LATEST 2021

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ACCT505 Project 2 Sample Capital Budgeting Problem Solution This file can be used as the template for the actual project. Johnnie & Sons Paints Inc. Data: Cost of new equipment $1,000,000 Expec ... ted life of equipment in years 5 Disposal value in 5 years $200,000 Life production—number of cans 27,500,000 Annual production or purchase needs 5,500,000 Initial training costs 0 Number of workers needed 6 Annual hours to be worked per employee 2,000 Earnings per hour for employees $15.00 Annual health benefits per employee $2,000 Other annual benefits per employee—% of wages 15% Cost of raw materials per can $0.30 Other variable production costs per can $0.10 Costs to purchase cans—per can $0.50 Required rate of return 11% Tax rate 35% Make Purchase Cost to Produce Annual cost of direct material: Need of 5.5 million cans per year $1,650,000 Annual cost of direct labor for new employees: Wages 180,000 Health benefits 12,000 Other benefits 27,000 Total wages and benefits 219,000 Other variable production costs 550,000 Total annual production costs $2,419,000 Annual cost to purchase cans $2,750,000 [Show More]

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