Clark Paints: The production department

Course Project A

For Project A, you will
need to review the Course Project Instructions in Document Sharing. An Excel
template file can be also found in Doc Sharing. Use it to do your master
budget and supporting schedules. This project will help you learn and understand
what a master budget is and how it is prepared. When you have
completed Project A, upload it into the Dropbox. There will be a
discussion thread area in Weeks 4 and 5 that you can use to ask questions about
the project.

Grading Rubric for
Course Project (Part A)

See Syllabus, Due Dates for Assignments & Exams, for due date information.

Course Project B

Clark Paints: The Production Department has been
investigating possible ways to trim total production costs. One possibility currently
being examined is to make the paint cans instead of purchasing them. The
equipment needed would cost $200,000, with a disposal value of $40,000, and it
would be able to produce 5,500,000 cans over the life of the machinery. The
Production Department estimates that approximately 1,100,000 cans would be
needed for each of the next five years.

The company would hire three new employees. These three individuals would be
full-time employees, working 2,000 hours per year and earning $12.00 per hour.
They would also receive the same benefits as other production employees, 18% of
wages, in addition to $2,500 of health benefits.

It is estimated that the raw materials will cost 25¢ per can and that other
variable costs would be 5¢ per can. Since there is currently unused space in
the factory, no additional fixed costs would be incurred if this proposal is
accepted.

It is expected that cans would cost 45¢ each if purchased from the current
supplier. The company’s minimum rate of return (hurdle rate) has been
determined to be 12% for all new projects, and the current tax rate of 35% is
anticipated to remain unchanged. The pricing for a gallon of paint, as well as
the number of units sold, will not be affected by this decision. The
unit-of-production depreciation method would be used if the new equipment is
purchased.

Required:
1. Based on the above information and using Excel, calculate the
following items for this proposed equipment purchase:

• Annual cash flows over the expected life of the
  equipment;
• Payback period;
• Annual rate of return;
• Net present value; and
• Internal rate of return.

2. Would you recommend
the acceptance of this proposal? Why or why not? Prepare a short, double-spaced
Word paper elaborating and supporting your answer.

Note: A sample problem can be found in Doc Sharing
(Word document instructions and Excel document solution).

Grading Rubric for
Course Project (Part B)

See Syllabus, Due Dates
for Assignments & Exams, for due date information.