Ask Question
3 June, 08:44

The Terme Corporation is contemplating the purchase of new equipment, which may potentially increase revenues by 25%. Currently, sales are $750,000 per year and variable costs are 55% of sales. The equipment is expected to last for 5 years with no residual value. The cash outflow expected at the beginning of the year is $ 357,500. 37) By how much would Terme's annual gross profit increase if the investment is undertaken

+4
Answers (1)
  1. 3 June, 09:51
    0
    The increase in gross profit is $12,374.93

    Explanation:

    The increase in sales due to purchasing this new equipment is 25% of current sales figure of $750,000

    increase in sales=$750,000*25%=$187,500

    variable cost on the increase in sales is 55%=$187500 * 55%=$103,125

    The annual depreciation charge on the new equipment=cost of the new equipment-salvage value/useful life

    cost of the new equipment is $357,500.37

    salvage value is $0

    useful life of the new equipment is 5 years

    annual depreciation charge = ($357,500.37-$0) / 5=$ 71,500.07

    Increase / (decrease) in annual gross profit=$187,000-$103,125-$ 71,500.07 = $12,374.93
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “The Terme Corporation is contemplating the purchase of new equipment, which may potentially increase revenues by 25%. Currently, sales are ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers