...Course Project – Clark Paints Joseph Pingtella Keller Graduate School of Management AC505 Managerial Accounting February 26, 2012 Professor David Buenger Clark Paints From the financial analysis I recommend that Clark Paints pursue the option of producing their paint cans internally versus buying from a supplier. On a cursory review, the analysis indicates the annual cost to produce the cans is $422,460 versus buying at a price of $495,000. This is a before tax savings of $72,540 ($58,351 after taxes) annually by producing the paint cans versus purchasing from a supplier. The payback on the equipment investment is realized in 3.43 years making the equipment paid for prior to the five year depreciation schedule. This indicates that the investment cost for the equipment is financially sound. To truly understand if the decision is financially correct, I will use the Net Present Value (NPV) and Internal Rate of Return (IRR) to justify the decision. NPV is a time series of cash flows for both incoming and outgoing (Garrison, 2010). Since the NPV is $33,040, we can assume that the project will recover the original cost of the equipment investment and generate excess cash flow justifying the original allocation of funds to purchase. Clark Paints - Net Present Value Before Tax After tax % PV Present Item Year Amount Tax% Amount Factor Value Cost of machine 0 $ (200,000) $ (200,000) 1 $ (200,000) Annual cash savings 1-5 $ 72,540 65% $ 47,151 3.60 $...
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