Your company is currently paying an outside firm $240,000 per year to manufacture products for your company. You sell…

Your company is currently paying an outside firm $240,000 per year to manufacture products for your company. You sell…

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Your company is currently paying an outside firm $240,000 per year to manufacture products
for your company. You sell the products for $350,000 each year. You are considering moving the operations in
house. To do so, you would need to spend $250,000 on equipment today which you are able to depreciate over five
years. You will operate the equipment for 10 years before it needs to be replaced. You will need to pay salaries and
benefits of $110,000 per year. You will also need to pay $100,000 per year on the goods used in manufacturing. Your
company’s tax rate is 20%. The appropriate discount rate is 9%. a) Should you move operations in house? b) If
salaries and benefits will be $90,000 per year, would your decision change? c) If salaries and benefits will be
$130,000 per year, would your decision change?

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Determine whether I should move operations in house Given Initial equipment cost 250 000 depreciated over five years Operating costs including salarie
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