assumptions, capital budgeting, externalities, business and finance assignment help

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Business Finance

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 You will need to create 1) Assumptions 2) Capital Budget Spreadsheet 3) Externalities


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Unlimited Designs, Inc. (UDI), a manufacturer of architectural stone and custom fabrications for both residential and commercial customers, is considering the purchase of a new machine. Currently, the business has three concrete mixers of varying ages (see photos) used to prepare a variety of concrete mixes for their various products. The equipment is old, inefficient, and subject to frequent breakdowns. If a new mixer is purchased, UDI would keep the best of the machines as a backup and would sell the two older machines. It is estimated by management that they could sell Old Machine 1 for approximately $5,000 and Old Machine 2 for approximately $2,000. Management has received a bid on a new machine (see brochure) from the manufacturer for $178,054, but the bid does not include any shipping, sales tax or installation. Management estimates shipping will run approximately $2,000. UDI will be able to install the machine using existing floor space, but the project will require a significant amount of modifications. Two new overhead doors will be needed at about $3,500 each. Electrical and water feeds will cost in the neighborhood of $2,500. Also, management is allowing an additional $3,000 for bins and other modifications. The old machines can each produce a ¼ yard batch in approximately 17 minutes. The machines are run by two operators with an assistant aiding on both machines as needed (for about half of his shift.) The cost of the operators wages (fully burdened for taxes and benefits) is approximately $25 per hour each. Last year, the company produced approximately 1,500 yards of concrete on its various projects. The company is currently under contract for several major projects which leads management to believe that next years’ production will need to be about 2,500 yards. The new machine is capable of producing ½ yard batches every 4 minutes. The new machine will require a full-time operator and a full-time assistant. The old equipment has significant maintenance costs. Due to the age and condition of the equipment, a maintenance employee spends 30-45 minutes per day running maintenance on the machines. Blades are replaced at a cost of $1,600 per blade (4 blades per mixer) about every 6-9 months. Each of the three machines seems to need a major maintenance overhaul about every four years at a cost of about $3,500. About 70% of the time, at least one of the three machines in inoperable (hence the need for three machines.) In addition, the machines seem to go down for about 40-50 hours per year, which cause about 15 laborers to sit idly during that period of time. (Consider the fully burdened cost of laborers at about $20 per hour. It is unknown what the down time and maintenance costs would be on the new machine, but it should be significantly reduced. One might also assume that the new machine would be more energy efficient, but the savings there is unknown. Another major advantage of the new machine would be in the quality of the finished product. The new machine will accurately measure the ingredients and moisture content of the mixes which would help avoid color and consistency of batches. Currently, about 25% of the batches are requiring rework which costs an average of $75 in labor and materials for each batch. Last year, the total cost of rework is estimated to be about $25,000. The new machine should cut down on the inconsistency by at least 80%. UDI owns a hopper that is capable of filling the various molds. However, the speed of the mixing process is so much slower than the process of filling the molds, that UDI has elected to have employees shovel fill the molds. With the high speed of the new machine, the hopper could be used to fill molds and significantly reduce the fill time. Currently, there are 2-3 laborers always working on shovel-filling the molds. Using the hopper could cut down the filling time for as much as 80%. The company is growing rapidly, from 5% - 25% per year over the past seven years. This years projected growth is due to the addition of several major contracts, but the company estimates that it will continue to operate at the new level going into the future, plus additional growth. The company is capable of borrowing about 80% of the purchase price at a rate of 5.75% interest. The balance would come for the equity of the company. Assume that the shareholders would demand at return of at least 20% on their equity. UDI is a sub-chapter S corporation. As such, assume that the combined state and federal tax is 38% (marginal). You need to do is to create 1) Assumptions 2) Capital Budget Spreadsheet 3) Externalities Manufactured by 828 4th Street Elk River, MN 55330 Phone (763) 441-1581 Fax (763) 441-1596 Acromix batch plants occupy a compact envelope, with mixers sized for your application. Acromix batch plant may be manufactured complete with operator platform and ladder, overhead cement batching, traveling weigh batcher and overhead aggregate storage (rim height on a 17 cubic yard bin set is a user friendly 10’-0”). Acromix batch plants are constructed and shipped in large components. Many are built on a common frame. www.ermc.com Manufactured by 828 4th Street Elk River, MN 55330 Phone (763) 441-1581 Fax (763) 441-1596 Acromix horizontal shaft mixers employ a time tested and proven action with modern durable design and construction. To give you decades of reliable service Low profile overhead aggregate storage with a variety of bin sets The Acromix traveling batcher and lifting arms eliminate the need for messy conveyors. The traveling batcher carriage is equipped with compression load cells to measure only the material placed in the batcher bucket The typical Acromix batch plant employs an hydraulic lifting system without the use of sheaves, cables or winches. The hydraulic cylinders are equipped with counter-balance valves for a fail-safe operation. In the rare and unlikely event of power failure, or broken hydraulic hose, the batcher bucket will stay in place, even in an elevated position and under full load www.ermc.com Manufactured by 828 4th Street Elk River, MN 55330 Phone (763) 441-1581 Fax (763) 441-1596 Overhead cement batching provides the cleanest, most efficient method for adding cement to your mixer. ERMC has a number of methods of handling bulk cement. Dual overhead powder batchers provide efficient, clean and accurate measurement of multiple powder materials. Acromix batch plants include manual controls as a standard component. Upgrades include multiple levels of Easy-Touch automation with optional features including touch screen, full sheet printer, automatic moisture compensation and data storage Cement silos and screw conveyors are also available from ERMC / Acromix. www.ermc.com Manufactured by 828 4th Street Elk River, MN 55330 Phone (763) 441-1581 Fax (763) 441-1596 Mixers - Yours, theirs, or our mixer will fit the Acromix batch plant. While we naturally prefer the Acromix mixer, we have mounted units from other manufacturers, and even existing customers’ mixers. The one yard-batch plant featured below employs an Acromix one-yard ribbon style mixer with an additional stand prepared for the customer’s existing mixer already at the jobsite. The Acromix plant will serve both mixers from a common traveling weigh batcher and automation package. www.ermc.com Manufactured by 828 4th Street Elk River, MN 55330 Phone (763) 441-1581 Fax (763) 441-1596 Acromix batch plants are designed and built to be used outdoors. Acromix batch plants have a low profile and compact footprint. The bins shown here will each store approximately 8.5 cubic yards measured water level full and a rim height of 10’-0”. The precaster has employed an attractive and relatively economical ramp to make bin charging even easier. You may elect to protect your batch plant from the elements The above installations illustrate the use of ramps and overhead garage doors to provide easy access to the bins, with a minimum of required head room. Moisture in the aggregates being stored is more controllable, spillage reduced, and the garage doors can be locked down to prevent vandalism. www.ermc.com Manufactured by 828 4th Street Elk River, MN 55330 Phone (763) 441-1581 Fax (763) 441-1596 The above photo illustrates the transfer of outdoor, bulk aggregate material to indoor bin storage. The front end loader utilizes a hopper (protected from the elements), and an electrically powered radial conveyor to charge any of three bins Bulk aggregate ground storage is illustrated above. The precaster has paved the area and provided a pitch to the floor. The slight incline from front to back provides a path for water drainage, thereby keeping the aggregates at a more consistent moisture content. You may consider covering the bulk bins for additional protection from the elements. www.ermc.com Project Photos – Current Equipment Best Mixer Will be kept for backup Hopper Shovel Fill Hopper is currently used to fill mixer, could be moved with new machine to help fill forms Old Machine 1 Old Machine 2
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Explanation & Answer

Done.

Assumptions
The machines will go down for exactly 50 hours this year
The blades will be replaced in 9 months this year
The new machine will produce 1000 yards this year
There are two mixers because the two old ones will be sold
The new machine will cut down inconsistency costs by 80%
Using the hopper will cut down the filling time for as much as 80%.
About 70% of the time, at least one of the three machines in inoperable
The shipping costs will be $2000
Externalities
Machines going down for between 40-50 hours a year will cause about 15 laborers to sit idly during that
period of time.


Capital budgeting
C...


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