A gadgets producer currently manufacture 300,000 unit per year. it buts gadgets lids from an outside supplier...

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Agadgets producer currently manufacture 300,000 unit per year. itbuts gadgets lids from an outside supplier at a price of 2.1$ perlid. the plant manager believes that it would be cheaper to makethese lids rather than buy them. direct production cost areestimated to be only 1.6$ a lid. the neccessary machinery wouldcost 155000$ and would last 10 years. this investment could bewritten off for tax deprecition schedule. the plant managerestimates that the operation would require additional workingcapital of 32000$ but argues that the sum can be ignored since itis recoverable at the end of 10 years. if the company payscorporate taxes at a rate of 35% and the opportunity cost ofcapital is 15%. would you support the plant manager’s proposal?state clearly any additional assumption that you need to make tosupport your position. prepare solution under excel

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Solution Present value of cash outflow Investment in fixed asset Investment in working capital 155000 32000 187000 Calculation of Operating cash flow OCF Particulars Amount Net savings Depreciation 150000 210 160 See Answer

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Agadgets producer currently manufacture 300,000 unit per year. itbuts gadgets lids from an outside supplier at a price of 2.1$ perlid. the plant manager believes that it would be cheaper to makethese lids rather than buy them. direct production cost areestimated to be only 1.6$ a lid. the neccessary machinery wouldcost 155000$ and would last 10 years. this investment could bewritten off for tax deprecition schedule. the plant managerestimates that the operation would require additional workingcapital of 32000$ but argues that the sum can be ignored since itis recoverable at the end of 10 years. if the company payscorporate taxes at a rate of 35% and the opportunity cost ofcapital is 15%. would you support the plant manager’s proposal?state clearly any additional assumption that you need to make tosupport your position. prepare solution under excel