1Problem 14-18 (Algo) Net Present Value Analysis [LO14-2]PrintOakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rateis 17% and it estimated the following costs and revenues for the new product:Cost of equipment neededWorking capital neededOverhaul of the equipment in two yearsSalvage value of the equipment in four years.Annual revenues and costs:Sales revenuesVariable expensesFixed out-of-pocket operating costs$ 190,000$ 69,000$ 6,000$ 16,500$ 340,000$ 165,000$ 79,000When the project concludes in four years, the working capital will be released for investment elsewhere within the company.Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.Required:Calculate the net present value of this investment opportunity.Note: Round your final answer to the nearest whole dollar amount.Net present value

Determine the initial cash outflow, which includes the cost of equipment and the working capital…

Answered: 1 Problem 14-18 (Algo) Net Present…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Differential Analysis Involving Opportunity Costs On July 1, Matrix Stores Inc. is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $149,800 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled: Cost of store equipment $149,800 Life of store equipment 16 years Estimated residual value of store equipment $17,800 Yearly costs to operate the warehouse, excluding depreciation of equipment $55,600 Yearly expected revenues—years 1-8 74,600 Yearly expected revenues—years 9-16 70,200 Required: 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.…
Net Present Value Method for a Service Company Coast-to-Coast Inc. is considering the purchase of an additional delivery vehicle for $46,000 on January 1, 20Y1. The truck is expected to have a five-year life with an expected residual value of $7,000 at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be $61,000 per year for each of the next five years. A driver will cost $41,000 in 20Y1, with an expected annual salary increase of $3,000 for each year thereafter. The annual operating costs for the truck are estimated to be $2,000 per year. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 a. Determine the…
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Differential Analysis Involving Opportunity Costs On July 1, Midway Distribution Company is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $150,400 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled: Cost of store equipment $150,400 Life of store equipment 16 years Estimated residual value of store equipment $18,900 Yearly costs to operate the warehouse, excluding depreciation of equipment depreciation of store equipment $56,200 Yearly expected revenues—years 1-8 74,600 Yearly expected revenues—years 9-16 70,500 Required: 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". For those boxes…
3 TWO PROJECTS A company wishes to use a five-year time scale over which to appraise the following projects, with no allowance for scrap values. Its required rate of return is 17%. Project X Purchase of patent rights to a new process at an initial cost of $320,000 payable immediately. The new process will enable the company to reduce its labour force, at present incurring a total wages bill of $280,000, by a quarte: and will allow an increased production capacity of 5,000 units per year of another existing product which at present is sold at $12 per unit with direct costs of $6. There is an 80% chance that the extra potential production could all be sold, with a 20% chance of demand only taking up an extra 3,000 units per year. Production would be adjusted to match demand. This product is made with hardly any labour. Project Y Installation of a mini-computer to deal with the accounting functions at an annual rental charge of $50.000, paid in advance At present the company uses an IT…
NOT GRADED Net Present Value AnalysisChampion Company is considering a contract that would require an expansion of its food processing capabilities. The contract covers five years. To provide the required products, Champion would have to purchase additional equipment for $80,000. Champion estimates the contract will provide annual net cash inflows (before taxes) of $35,000. For tax purposes, the equipment will be depreciated as follows: Year 1 $10,000 Year 2 20,000 Year 3 20,000 Year 4 20,000 Year 5 10,000 Although salvage value is ignored in the tax depreciation calculations, Champion estimates the equipment will be sold for $10,000 after five years. Assuming a 35% income tax rate and a 10% hurdle rate, compute the net present value of this contract proposal. Using net present value analysis, should Champion accept the contract? Round answers to the nearest whole number. Use rounded answers for subsequent calculations.Use a negative sign with net present value to…
Differential Analysis Involving Opportunity Costs On July 1, Coastal Distribution Company is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $148,600 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled: Cost of store equipment $148,600 Life of store equipment 16 years Estimated residual value of store equipment $18,300 Yearly costs to operate the warehouse, excluding depreciation of equipment $55,900 Yearly expected revenues—years 1-8 75,300 Yearly expected revenues—years 9-16 69,800 Required: 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.…
Differential Analysis Involving Opportunity Costs On October 1, Matrix Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $149,100 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled: Cost of store equipment $149,100 Life of store equipment 16 years Estimated residual value of store equipment $17,900 Yearly costs to operate the store, excluding depreciation of store equipment $56,100 Yearly expected revenues—years 1-8 $74,800 Yearly expected revenues—years 9-16 $71,000 Required: 1. Prepare a differential analysis as of October 1 to determine whether to Operate Retail Store (Alternative 1) or Invest in Bonds (Alternative 2). If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.…
i 4 ances Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $47,000 and a remaining useful life of five years. It can be sold now for $57,000. Variable manufacturing costs are $50,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is five years. Purchase price Variable manufacturing costs per year (a) Compute the income increase or decrease from replacing the old machine with Machine A (b) Compute the income increase or decrease from replacing the old machine with Machine B. (c) Should Lopez keep or replace its old machine? (d) if the machine should be replaced, which new machine should Lopez purchase? Req A Complete this question by entering your answers in the tabs below. Revenues Machine A: Keep or Replace Analysis Req B Compute the income increase or decrease from replacing the old machine with Machine A. (Amounts to be…
ex1. Differential Analysis Involving Opportunity Costs On July 1, Coastal Distribution Company is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $740,000 of 5% U.S. Treasury bonds that mature in 14 years. The bonds could be purchased at face value. The following data have been assembled: Cost of equipment $740,000 Life of equipment 14 years Estimated residual value of equipment $75,000 Yearly costs to operate the warehouse, excluding depreciation of equipment $175,000 Yearly expected revenues—years 1-7 $280,000 Yearly expected revenues—years 8-14 $240,000 Required: 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 14 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter zero "0". Differential Analysis Operate Warehouse…

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