Capital Expenditures Budget For the Four Years Ending December 31, 20Y5-20Y8 | Description | 20Y5 | 20Y6 | 20Y7 | 20Y8 | |-----------------------|------|------|------|------| | Information systems | | | | | | Total | | | | |
Added by Angelica O.
Close
Step 1
Step 1: Determine the capital expenditures budget for information systems for each year (20Y5, 20Y6, 20Y7, 20Y8). Show more…
Show all steps
Your feedback will help us improve your experience
Akash M and 62 other Principles of Accounting educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Recommended Videos
Capital Expenditures Budget On August 1, 20Y4, the controller of Handy Dan Tools Inc. is planning capital expenditures for the years 20Y5-20Y8. The controller interviewed several Handy Dan executives to collect the necessary information for the capital expenditures budget. Excerpts of the interviews are as follows: Director of Facilities: A construction contract was signed in May 20Y4 for the construction of a new factory building at a contract cost of $9,000,000. The construction is scheduled to begin in 20Y5 and completed in 20Y6. Vice President of Manufacturing: Once the new factory building is finished, we plan to purchase $3.6 million in equipment in late 20Y6. I expect that an additional $500,000 will be needed early in the following year (20Y7) to test and install the equipment before we can begin production. If sales continue to grow, I expect we'll need to invest another half million in equipment in 20Y8. Vice President of Marketing: We have really been growing lately. I wouldn't be surprised if we need to expand the size of our new factory building in 20Y8 by at least 25%. Fortunately, we expect inflation to have minimal impact on construction costs over the next four years. Additionally, I would expect the cost of the expansion to be proportional to the size of the expansion. Director of Information Systems: We need to upgrade our information systems to wireless network technology. It doesn't make sense to do this until after the new factory building is completed and producing product. During 20Y7, once the factory is up and running, we should equip the whole facility with wireless technology. I think it would cost us $400,000 today to install the technology. However, prices have been dropping by 10% per year, so it should be less expensive at a later date. President: I am excited about our long-term prospects. My only short-term concern is financing the $5,000,000 of construction costs on the portion of the new factory building scheduled to be completed in 20Y5. Use the interview information above to prepare a capital expenditures budget for Handy Dan Tools Inc. for the years 20Y5-20Y8. If an amount box does not require an entry, leave it blank. Enter all amounts as positive numbers. HANDY DAN TOOLS INC. Capital Expenditures Budget For the Four Years Ending December 31, 20Y5-20Y8 20Y5 20Y6 20Y7 20Y8 Building Equipment Information systems Total
Akash M.
Jerry Fine has been the Chief Financial Officer (CFO) for Johnson Manufacturing for nearly 20 years. Johnson Manufacturing owns the factory building that houses its operations, but the company's production levels are nearing maximum capacity for the factory building's size. The company is considering expanding and possibly constructing a new larger factory building to house all of its operations. Construction of the new factory building is expected to cost $2,500,000, and the building is expected to have a 14-year life. Ronnie Epps, the company's Chief Executive Officer (CEO), has asked Jerry to "run the numbers" and come up with a recommendation for approval or rejection of the expansion project to be presented to the company's board of directors. Ronnie reminds Jerry that the company must have a rate of return of at least 6% on any investment. After carefully analyzing the numbers, Jerry estimates that the expansion project could produce maximum additional future annual net cash flows of $250,000. The present value factors from the Present Value of an Annuity of $1 Table for 14 periods are as follows: Periods 4% 5% 6% 7% 14 10.5631 9.8986 9.2950 8.7455 REQUIRED: 1. Calculate the Net Present Value (NPV) of the expansion project. Assume that the factory building will have no salvage value. Show all of your calculations. (4 points possible.) 2. Calculate the Internal Rate of Return (IRR) for the expansion project. Show all of your calculations. (4 points possible.) 3. Based on the results of your NPV and IRR calculations above, should Jerry recommend approval or rejection of the expansion project? Provide explanations for your answer. (4 points possible.) 4. Jerry's sister, Brenda, has just started up a new construction company that specializes in the construction of commercial buildings. Jerry is extremely eager to see his sister's company get off the ground and become successful. Two years ago, Brenda's husband, Carl, was severely injured during combat while serving with the United States Army and is totally and permanently disabled as a result of his injuries. Since Carl's injury, Brenda has become very involved with the Wounded Warrior Project, serving as Chairman for the charitable organization's local chapter. She is also involved with several other charities in the area that provide food and other necessities to the homeless. Brenda has pledged to donate 10% of the net profits from her construction business to charity. Jerry knows that a $2,500,000 construction project could be life-changing for Brenda's new company, Brenda's family, and countless individuals impacted by the charitable organizations Brenda is involved with. Jerry could easily (and discreetly) increase the estimated future annual net cash flows for Johnson Manufacturing by a small amount (approximately $20,000 per year), thereby changing the results of the calculations supporting a different recommendation to the company's board of directors. Explain why Jerry should or should not consider doing this. Your explanation should be at least one paragraph long (typed, double-spaced, preferably in a Word document) and should include adequate reasoning supporting your conclusion after considering all of the circumstances. (18 points possible.)
ACCT 2123 - END OF TERM ASSIGNMENT (NOTE: This is a REQUIRED assignment, NOT bonus. It is due by 10 p.m. on Sunday, July 30. Please submit your solution(s) in an email to me.) Jerry Fine has been the Chief Financial Officer (CFO) for Johnson Manufacturing for nearly 20 years. Johnson Manufacturing owns the factory building that houses its operations, but the company's production levels are nearing maximum capacity for the factory building's size. The company is considering expanding and possibly constructing a new larger factory building to house all of its operations. Construction of the new factory building is expected to cost $2,500,000, and the building is expected to have a 14-year life. Ronnie Epps, the company's Chief Executive Officer (CEO), has asked Jerry to "run the numbers" and come up with a recommendation for approval or rejection of the expansion project to be presented to the company's board of directors. Ronnie reminds Jerry that the company must have a rate of return of at least 6% on any investment. After carefully analyzing the numbers, Jerry estimates that the expansion project could produce maximum additional future annual net cash flows of $250,000. The present value factors from the Present Value of an Annuity of $1 Table for 14 periods are as follows: Periods 4% 5% 6% 7% 14 10.5631 9.8986 9.2950 8.7455 REQUIRED: 1. Calculate the Net Present Value (NPV) of the expansion project. Assume that the factory building will have no salvage value. Show all of your calculations. (4 points possible.) 2. Calculate the Internal Rate of Return (IRR) for the expansion project. Show all of your calculations. (4 points possible.) 3. Based on the results of your NPV and IRR calculations above, should Jerry recommend approval or rejection of the expansion project? Provide explanations for your answer. (4 points possible.) 4. Jerry's sister, Brenda, has just started up a new construction company that specializes in the construction of commercial buildings. Jerry is extremely eager to see his sister's company get off the ground and become successful. Two years ago, Brenda's husband, Carl, was severely injured during combat while serving with the United States Army and is totally and permanently disabled as a result of his injuries. Since Carl's injury, Brenda has become very involved with the Wounded Warrior Project, serving as Chairman for the charitable organization's local chapter. She is also involved with several other charities in the area that provide food and other necessities to the homeless. Brenda has pledged to donate 10% of the net profits from her construction business to charity. Jerry knows that a $2,500,000 construction project could be life-changing for Brenda's new company, Brenda's family, and countless individuals impacted by the charitable organizations Brenda is involved with. Jerry could easily (and discreetly) increase the estimated future annual net cash flows for Johnson Manufacturing by a small amount (approximately $20,000 per year), thereby changing the results of the calculations supporting a different recommendation to the company's board of directors. Explain why Jerry should or should not consider doing this. Your explanation should be at least one paragraph long (typed, double-spaced, preferably in a Word document) and should include adequate reasoning supporting your conclusion after considering all of the circumstances. (18 points possible.)
Recommended Textbooks
Horngren’s Cost Accounting
Cost Accounting A Managerial Emphasis
Principles of Accounting Volume 1: Financial Accounting
Transcript
Watch the video solution with this free unlock.
EMAIL
PASSWORD