Toying With Nature wants to take advantage of children's fascination with dinosaurs by adding several scale-model dinosa
Posted: Wed Mar 09, 2022 8:20 am
Toying With Nature wants to take advantage of children's
fascination with dinosaurs by adding several scale-model dinosaurs
to its existing product line. Annual sales of the dinosaurs are
estimated at 80,000 units at a price of $6 per unit. Variable
manufacturing costs are estimated at $2.50 per unit, incremental
fixed manufacturing costs (excluding depreciation) at $46,000
annually, and additional selling and general expenses related to
the dinosaurs at $60,000 annually.
To manufacture the dinosaurs, the company must invest $350,000
in design molds and special equipment. Since toy fads wane in
popularity rather quickly, Toying With Nature anticipates the
special equipment will have a three-year service life with only a
$20,000 salvage value. Depreciation will be computed on a
straight-line basis. All revenue and expenses other than
depreciation will be received or paid in cash. The company's
combined federal and state income tax rate is 40 percent.
Required:
a. Prepare a schedule showing the
estimated increase in annual net income from the planned
manufacture and sale of dinosaur toys.
b. Compute the annual net cash flows
expected from this project.
c. Compute the following. Assume
discounted at an annual rate of 15 percent. Use Exhibits
26-3 and 26-4 where necessary.
fascination with dinosaurs by adding several scale-model dinosaurs
to its existing product line. Annual sales of the dinosaurs are
estimated at 80,000 units at a price of $6 per unit. Variable
manufacturing costs are estimated at $2.50 per unit, incremental
fixed manufacturing costs (excluding depreciation) at $46,000
annually, and additional selling and general expenses related to
the dinosaurs at $60,000 annually.
To manufacture the dinosaurs, the company must invest $350,000
in design molds and special equipment. Since toy fads wane in
popularity rather quickly, Toying With Nature anticipates the
special equipment will have a three-year service life with only a
$20,000 salvage value. Depreciation will be computed on a
straight-line basis. All revenue and expenses other than
depreciation will be received or paid in cash. The company's
combined federal and state income tax rate is 40 percent.
Required:
a. Prepare a schedule showing the
estimated increase in annual net income from the planned
manufacture and sale of dinosaur toys.
b. Compute the annual net cash flows
expected from this project.
c. Compute the following. Assume
discounted at an annual rate of 15 percent. Use Exhibits
26-3 and 26-4 where necessary.