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The Airways Company is planning a
project that is expected to last for six
years and generate annual net
purchase of a P2,800,000 machine, which is expected to have a salvage value of
P100,000 at the end of the six-year period. In addition to annual operating costs, the
machine will require a P500,000 overhaul at the end of the fourth year. The company
presently has a 12% minimum desired
Required:
1. Calculate the payback period.
2. Calculate the accounting (simple) rate of return.
3. Calculate the
Step by step
Solved in 3 steps with 2 images
- Project A requires a $315,000 initial investment for new machinery with a five-year life and a salvage value of $35,500. Project A is expected to yield annual income of $23,900 per year and net cash flow of $78,750 per year for the next five years.Compute Project A’s accounting rate of return. *please help correct the answerA project requires an initial investment in equipment of $760,000 immediately (t=0) and is expected to produce sales revenue of $697, 000 the first year; this revenue will increase by 4.5% per year over the next four years. Manufacturing costs are estimated to be 67% of the sales. The project demand analysis, which was done last year, cost $235,000. The asset can be depreciated on a straight-line basis over five years to a zero salvage value. The corporate tax rate is 36%. The project requires an investment in working capital. Specifically, at the beginning of the project (t=0), $45,000 of working capital is required; thereafter, working capital is projected to be 6.0% of revenue. The investment in working capital will be recovered at the end of the fifth year. At the end of the 5th year, the company plans to sell the equipment for $18,900. To calculate the cost of capital for this project, the firm is going to use the following companies as comparable firms. Beta Debt Equity…Bruin Building Supply is considering expansion. Operating cash flow will be $710,000 a year. The project will require new equipment costing $1,850,000 that would be depreciated on a straight-line basis to zero over the 5-year life of the project. The equipment will have a market value of $370,000 at the end of the project. The project requires an initial investment of $525,000 in net working capital, which will be recovered at the end of the project. The tax rate is 28.00 percent. What is the project's IRR? Answer in whole numbers, rounded to three decimal places.
- Milan Ltd. wants to purchase a new machine for its factory operations at a cost of £380,000. This cost would be paid off in four installments: an immediate payment of £170,000, and a payment of £70,000 at the end of each of the next three years. The investment is expected to generate £80,000 in annual cash flows for a period of six years. The annual operating costs associated with the new machine are estimated to be £118,000 per year, including depreciation. These cash flows and costs will generally occur throughout the year and are recognized at the end of each year. Additional information:1. The old machine can be sold for £25,000.2. The new machine is expected to have the terminal disposal value £32,000 at the end of a six-year period.3. Depreciation of the new machine is calculated using the straight-line method.4. Major maintenance cost at the end of Year 3 will be £55,000 and at the end of Year 5 will be £30,000.5. An additional cash investment in working capital of £20,000 will…Cirice Corporation is considering opening a branch in another state. The operating cash flow will be $ 150, 400 a year. The project will require new equipment costing $592, 000 that would be depreciated on a straight-line basis to zero over the 6-year life of the project. The equipment will have a market value of $ 177,000 at the end of the project. The project requires an initial investment of $41,000 in net working capital, which will be recovered at the end of the project. The tax rate is 23 percent. What is the project's IRR? Multiple Choice 12.33% 17.06% 15.99% 15.67% 14.74%The management of Lanzilotta Corporation is considering a project that would require an investment of $228,000 and would last for 6 years. The annual net operating income from the project would be $118,000, which includes depreciation of $33,000. The scrap value of the project's assets at the end of the project would be $25,900. The cash inflows occur evenly throughout the year. The payback period of the project is closest to (Ignore income taxes.): (Round your answer to 1 decimal place.) Multiple Cholce 1.5 years 1.9 years 1.3 years 27 years
- Cardinal Company is considering a project that would require a $2,782,000 investment in equipment with a useful life of five years. At the end of five years, the project would terminate and the equipment would be sold for its salvage value of $200,000. The company’s discount rate is 18%. The project would provide net operating income each year as follows: Sales $ 2,873,000 Variable expenses 1,019,000 Contribution margin 1,854,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 754,000 Depreciation 516,400 Total fixed expenses 1,270,400 Net operating income $ 583,600 Required:If the equipment’s salvage value was $400,000 instead of $200,000, what would be the project’s simple rate of return? (Round your answer to 2 decimal places.)A company is considering a new 6-year project that will have annual sales of $237,000 and costs of $148,000. The project will require fixed assets of $267,000, which will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, 11.52 percent, and 5.76 percent, respectively. The company has a tax rate of 22 percent. What is the operating cash flow for Year 2? Multiple Choice $79,210 $88,217 $76,187 $38,377 $80,698Joanette, Inc., is considering the purchase of a machine that would cost $420,000 and would last for 5 years, at the end of which, the machine would have a salvage value of $42,000. The machine would reduce labor and other costs by $102,000 per year. Additional working capital of $4,000 would be needed immediately, all of which would be recovered at the end of 5 years. The company requires a minimum pretax return of 17% on all investment projects. (ignore income taxes.) Click here to view Exhibit 128-1 and Exhibit 128-2 to determine the appropriate discount factor(s) using the tables provided. Required: Determine the net present value of the project. (Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to the nearest whole dollar amount.) Net present value
- Prescott Corporation is considering an investment in new equipment costing $928,000. The equipment will be depreciated on a straight-line basis over a ten-year site and is expected to have a residual value of $106.000. The equipment is expected to generate net cash inflows of $144,000 for each of the first five years and $102,000 for each of the last five years. What is the accounting rate of return associated with the equipment investment? (Round your answer to two decimal places.) OA. 7.89% OB. 9.63% OC. 9.39 % OD 9.05%A proposed three-year project will require $589,000 for fixed assets, $79,000 for inventory, and $43,000 for accounts receivable. Accounts payable are expected to increase by $47,000. The fixed assets will be depreciated straight-line to a zero book value over five years. No bonus depreciation will be taken. At the end of the project, the fixed assets can be sold for $225,000. The net working capital returns to its original level at the end of the project. The operating cash flow per year is $67,900. The tax rate is 20 percent and the discount rate is 12 percent. What is the total cash flow in the final year of the project?Jefferson Products Inc. is considering purchasing a new automatic press brake, which costs $320,000 including installation and shipping. The machine is expected to generate net cash inflows of $90,000 per year for 12 years. At the end of 12 years, the book value of the machine will be $0, and it is anticipated that the machine will be sold for $110,000. If the press brake project is undertaken, Jefferson will have to increase its net working capital by $100,000. When the project is terminated in 12 years, there will no longer be a need for this incremental working capital, and it can be liquidated and made available to Jefferson for other uses. Jefferson requires a 9 percent annual return on this type of project and its marginal tax rate is 40 percent. Use Table II and Table IV to answer the questions. Calculate the press brake's net present value. Round your answer to the nearest dollar.$ Is the project acceptable? The project is . What is the meaning of the computed net…
