John Crockett Furniture Company
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John Crockett Furniture Company - Cash Flow. See attached file for full problem description.
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Solution Summary
The solution explains the capital budgeting decision of adding an new line to the product mix by John Crockett Furniture Company.
Solution Preview
Please see the attached file.
a. The projects time line is attached.
b. (1) The incremental cash flows are calculated below :
We first calculate the depreciation using the MACRS 3 years depreciation table
The depreciation basis is the total cost incurred to make the machine operational
Cost of machine 200,000
Shipping Charges 10,000
Installation 30,000
Total cost 240,000
YEAR RATE  BASIS = DEPRECIATION
1 0.33 $240 $ 79.2
2 0.45 240 108
3 0.15 240 36
4 0.07 240 16.8
Annual Operating Cash Flows
Year 1 Year 2 Year 3 Year 4
Units 1250 1250 1250 1250
Unit price $200.00 $206.00 $212.18 $218.55
Unit cost $100.00 $103.00 $106.09 $109.27 ...
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