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    John Crockett Furniture Company

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    John Crockett Furniture Company - Cash Flow. See attached file for full problem description.

    © BrainMass Inc. brainmass.com June 3, 2020, 8:07 pm ad1c9bdddf
    https://brainmass.com/business/capital-budgeting/124380

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    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 ...

    Solution Summary

    The solution explains the capital budgeting decision of adding an new line to the product mix by John Crockett Furniture Company.

    $2.19

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