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Relactant Receptinist


Submitted By ravi007
Words 478
Pages 2
Master of Business Administration
Accounting & Finance / Managerial Accounting

Ocean Foods Corporation (OFC) Ocean Foods Corporation (OFC) currently process seafood with a processing unit it purchased several years ago. The unit, with an original cost of $500,000, currently has a book value of $250,000. OFC is considering replacing the existing unit with a newer, more efficient one. The new unit will cost $700,000 and will require an additional $50,000 for delivery and installation. The new unit also will require OFC to increase its investment in initial net working capital by $40,000 followed by an increase of $ 10,000 in net working capital in year 1; no further increases in net working capital are anticipated. The working capital investment will be fully recovered at the termination of the project life. The full cost of the new unit will be depreciated on a straight-line basis over 5 years to a zero balance. When the new processing unit is purchased, OFC expects to sell the existing unit for $275,000. OFC’s marginal tax rate is 40 percent. If OFC purchases the new unit, annual revenues are expected to increase by $100,000 in the first year and by $150,000 in the second year relative to the old unit. The increases are attributable to greater processing capacity. Sales in year 3 and beyond are anticipated to remain at the same level as year 2’s projections. The annual operating costs (exclusive of depreciation) for the new unit are expected to be $20,000 less than if the old unit were kept. After 5 years, the new unit will be completely depreciated and is expected to be sold for $70,000. (Assume that the existing unit is being depreciated at a rate of $50,000 per year). There is no disposable market value for the existing processing unit at any point of time, due to the specific tailor made design.

The Sisneros Company (SSC) The Sisneros

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