Category : Financial and Statistics
Archive   : PROSPANS.ZIP
Filename : TXZINTRO.DOC

 
Output of file : TXZINTRO.DOC contained in archive : PROSPANS.ZIP
TLON, XLON or ZLON

(Based on a real-life example. Data is artificial)

ORIENTATION

Final plans for the new 2001 copy machine are being firmed up.
One of the major remaining financial decisions is the choice of
the type of coating to use on the fuser roll. A "TLON"-type of
coating has been used on orevious copy machine models, however,
the TLON coating produces a relatively low number of fopies
before it wears out. Due to the high copy volumes anticipated for
the 2001 copy machine, a low fuser roll copy life would result in
exceptionally high fuser roll manufacturing and service
replacement costs.

In an effort to reduce the above-mentioned costs, the Research
and Development Division has developed two new types of fuser
roll coating materials: "XLON" and "ZLON". Either of these new
coating materials would significantly increase fuser roll copy
life (the average number of copies a roll will make before it
wears out). The process to produce either of the two new roll
coatings would utilize the existing TLON production equipment and
facilities. However, major additional investments for the XLON
and ZLON production equipment and significantly higher fuser roll
manufacturing costs would be required.

ASSIGNMENT:

Assume that your team has been assigned the task of determining,
ata 15% after-tax hurdle rate, whether the TLON, XLON, or ZLON
coating process should be selected for the fuser roll of the
model 2001 copy machine. Use the after-tax ROI and the after-tax
NPV Bonus methods to determine your answer.

PROCEDURE:

þ Study the data through ZLON Expenditure Data carefully.
Develop a list of data that must be known before the
financial analysis can be conducted.
Examples: What are the Capital Investment, Associated
Expense, Direct Labor and Material Manufacturing Costs, roll
volume requirements, etc., for each coating type?

GIVEN:

þ Assume that all 2001 Copy machines manufactured are
immediately placed in service and will remain in service
until 12/31/97 at which time ALL fuser rolls (whether in
inventory or machines) will be salvaged at a value of $5.00
each.

þ Assume that all rolls whether worn out, rejected during
manufacturing, damaged, etc., will have a $5.00 salvage
value.

þ Assume that all investments for, and full implementation of
the 2001 fuser roll production will occur on 12/31/94 (i.e.,
Time '0').

þ The tax rate is 40%.

þ Use the Modified Accelerated Cost Recovery System (MACRS)
depreciation method for a 5-year depreciation category.

þ Note that the project is only 3 years in length.

þ Assume that all non-direct labor costs, i.e., engineering,
maintenance, quality control, shipping, inventory carrying
costs, etc., are in the variable overhead rate.

þ Assume that the TLON equipment will have no net salvage value
or remaining book value on 12/31/94.

þ Assume that the XLON and ZLON equipment net salvage value
equals the remaining book value on 12/31/97, i.e., $950K for
XLON and $1368K for ZLON (See pg. 7C1 in FIN/SI Core
Manual).

þ Assume that no fuser rolls of any type have been produced
thus far for the 2001 machine.

þ Assume that the required inventory for field service
replacement rolls at all times must be equal to the total of
the 2001 machines in service at that time, i.e., each 2001
machine placed into service, and each roll replaced, must be
immediately "backed up" by a fuser roll in field service
inventory through 12/31/97.

TLON EXPENDITURE DATA:

þ No additional investments are required.

þ All existing TLON equipment would be used as part of the XLON
or ZLON process.


XLON EXPENDITURE DATA:

þ $3,300,000 Capital purchase of new production equipment.

þ $300,000 in Associated Expenses.


ZLON EXPENDITURE DATA:

þ $4,750,000 Capital purchase of new production equipment.

þ $130,000 in Associated Expenses.

PLEASE PRESS TO RETURN TO PRO:FIN


  3 Responses to “Category : Financial and Statistics
Archive   : PROSPANS.ZIP
Filename : TXZINTRO.DOC

  1. Very nice! Thank you for this wonderful archive. I wonder why I found it only now. Long live the BBS file archives!

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