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Elon Motors produces electric automobiles. In recent years, they have been making all components of the cars, excluding the batteries for each vehicle. The company’s leadership te

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 Scenario and Assignment Details

Elon Motors produces electric automobiles. In recent years, they have been making all components of the cars, excluding the batteries for each vehicle. The company’s leadership team has been considering the ways to reduce the cost of producing its cars. The leadership team considered various options and believes Elon Motors could reduce the cost of each car if it produces the car batteries instead of purchasing  from the current vendor, Avari Battery Company.

Currently, the cost of each battery is $325 per unit. Elon Motors feels that it could greatly reduce the cost if the production team makes each battery. To produce these batteries, the company will need to purchase specialized equipment. Cost of the new equipment is  $1,570,000 with salvage value of $70,000 and a useful life of 10 years.

Currently, Elon Motors purchases 3,000 batteries per year, and  expects that the production will remain the same for the coming 10-year period. To make  batteries, Elon Motors has provided  below the relevant data about the proposed project.

  • Purchase of direct materials at a cost of $125 per battery produced.
  • Employing  three production workers to make the batteries. Each worker likely works for 2,080 hours per year and makes $25 per hour. In addition, health benefits will amount to 20% of the workers’ annual wages.
  • The variable manufacturing overhead costs are estimated to be $25 per unit.
  • Because there is currently unused space in the factory, no additional fixed costs would be incurred if this proposal is accepted.
  • Cost of capital (hurdle rate) has been determined to be 10% for all new projects, and the current tax rate of 30% is anticipated to remain unchanged.
  • The pricing for the company’s products as well as number of units sold will not be affected by this decision.
  • Elon Motors uses straight-line method to depreciate the equipment. 

 Required Items

  1. Based on the above information and using the provided Excel template (Files), calculate the following items for the proposed equipment purchase.
    1. Annual cash flows over the expected life of the equipment
    2. Payback period
    3. Accounting rate of return
    4. Net present value
    5. Internal rate of return
    6. Modified Internal rate of return
  • attachment

    courseprojecttemplatewithfactsmay2024.xlsx
  • attachment

    CourseProjectTemplateMay2024.xlsx

ELON MOTORS

ACCT434/436
Course Project
Elon Motors
Project Template
Elon Motors
Data:
Cost of new equipment $1,570,000 **Please be sure each fact is in the proper number format** **Please be sure you can explain the significance of each fact**
Expected life of equipment in years 10
Salvage Value $70,000
Life Production – make sure you understand formula 30,000
Annual production or purchase needs 3,000
Number of workers needed 3
Annual hours to be worked per employee 2,080
Earnings per hour for employees $25.00
Health Benefits – % of Wages 20%
Cost of Direct Materials $125.00
Variable Manufacturing Overhead Costs $25.00
Unit Cost to Purchase Batteries $325.00
Required rate of return 10%
Tax rate 30%
Make Purchase
Cost to Produce
Annual cost of direct material:
Need – Cost direct material $375,000 formula **Please be sure you can explain each formula and what the subtotal/total numbers mean**
Annual cost of direct labor for new employees:
Wages 156,000 formula
Health benefits 31,200 formula
Total wages and benefits 187,200 formula
Other variable production costs 75,000 formula
Total annual production costs $637,200 formula
Annual cost to purchase cans Annual Cost to Purchase Batteries $975,000 formula
Part 1 Cash Flows Over the Life of the Project
Before Tax Tax After Tax
Item Amount Effect Amount
Annual cash savings
Tax savings due to depreciation
Total after-tax annual cash flow
Part 2 Payback Period years
Part 3 Accounting Rate of Return
Accounting income as result of decreased costs
Annual cash savings
Less depreciation
Before tax income
Tax at Current Rate
After tax income
Accounting Rate of Return
Part 4 Net Present Value
Before Tax After Tax PV Present
Item Year Amount Tax % Amount Factor Value
Cost of machine 0
Annual cash savings 1-10
Tax savings due to depreciation 1-10
Disposal value 10
Net Present Value
Part 5 Internal Rate of Return and Modified Internal Rate of Return
After Tax
Item Year Amount
Cost of machine 0
Year 1 inflow 1
Year 2 inflow 2
Year 3 inflow 3
Year 4 inflow 4
Year 5 inflow 5
Year 6 7nflow 6
Year 7 inflow 7
Year 8 inflow 8
Year 9 inflow 9
Year 10 inflow 10
Internal Rate of Return
Modified Internal Rate of Return
Net Present Value

,

ELON MOTORS

ACCT434/436
Course Project
Elon Motors
Project Template
Elon Motors
Data:
Cost of new equipment $1,570,000.00
Expected life of equipment in years 12
Salvage Value $70,000
Life Production
Annual production or purchase needs
Number of workers needed
Annual hours to be worked per employee
Earnings per hour for employees
Health Benefits – % of Wages
Cost of Direct Materials
Variable Manufacturing Overhead Costs
Unit Cost to Purchase Batteries
Required rate of return
Tax rate
Make Purchase
Cost to Produce
Annual cost of direct material:
Need – Cost of direct material
Annual cost of direct labor for new employees:
Wages
Health benefits
Total wages and benefits
Other variable production costs
Total annual production costs
Annual cost to purchase cans Annual Cost to Purchase Batteries
Part 1 Cash Flows Over the Life of the Project
Before Tax Tax After Tax
Item Amount Effect Amount
Annual cash savings
Tax savings due to depreciation
Total after-tax annual cash flow
Part 2 Payback Period years
Part 3 Accounting Rate of Return
Accounting income as result of decreased costs
Annual cash savings
Less depreciation
Before tax income
Tax at Current Rate
After tax income
Accounting Rate of Return
Part 4 Net Present Value
Before Tax After Tax PV Present
Item Year Amount Tax % Amount Factor Value
Cost of machine 0
Annual cash savings 1-10
Tax savings due to depreciation 1-10
Disposal value 10
Net Present Value
Part 5 Internal Rate of Return and Modified Internal Rate of Return
After Tax
Item Year Amount
Cost of machine 0
Year 1 inflow 1
Year 2 inflow 2
Year 3 inflow 3
Year 4 inflow 4
Year 5 inflow 5
Year 6 7nflow 6
Year 7 inflow 7
Year 8 inflow 8
Year 9 inflow 9
Year 10 inflow 10
Internal Rate of Return
Modified Internal Rate of Return
Net Present Value

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