1. Austin's cell phone manufacturer wants to upgrade their product mix to encompass an exciting newfeature on their cell phone. This would require a new high-tech machine. You are excited about hisnew project and are recommending the purchase to your board of directors. Here is the informationyou have compiled to complete this recommendation:Unit selling priceUnit variable costFixed CostsDepreciation costsExpected sales$45,$25,$200,000,$35,000,10,000 units per yearAccording to the information, the project will last 10 years and require an initial investment of$800,000, depreciated with straight-line over the life of the project until the final value is zero. Thefirm's tax rate is 30% and the required rate of return is 12%. You believe that the variable cost andsales volume may be as much as 10% higher or lower than the initial estimate. Your boss understandsthe risks but asks you to explain the alternatives in a brief memo to the board. Write a memo to theBoard of Directors objectively weighing out the pros and cons of this project and make yourrecommendation(s).

Memo to the Board of Directors Subject: Recommendation for New High-Tech Machine InvestmentTo: Board…

Answered: 1. Austin's cell phone manufacturer…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Caspian Sea Drinks is considering the purchase of a plum juicer – the PJX5. There is no planned increase in production. The PJX5 will reduce costs by squeezing more juice from each plum and doing so in a more efficient manner. Mr. Bensen gave Derek the following information. What is the IRR of the PJX5? a. The PJX5 will cost $1.97 million fully installed and has a 10 year life. It will be depreciated to a book value of $173,984.00 and sold for that amount in year 10. b. The Engineering Department spent $49,587.00 researching the various juicers. c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $15,509.00. d. The PJX5 will reduce operating costs by $430,356.00 per year. e. CSD’s marginal tax rate is 26.00%. f. CSD is 66.00% equity-financed. g. CSD’s 19.00-year, semi-annual pay, 5.73% coupon bond sells for $1,031.00. h. CSD’s stock currently has a market value of $20.05 and Mr. Bensen believes the market estimates that dividends will grow at…
New Economy Transport (B) There is no question that the Vital Spark needs an overhaul soon. However, Mr. Handy feels it unwise to proceed without also considering the purchase of a new vessel. Cohn and Doyle Inc., a Wisconsin shipyard, has approached NETCO with a design incorporating a Kort nozzle, extensively automated navigation and power control systems, and much more comfortable accommodations for the crew. Estimated annual operating costs of the new vessel are: Fuel Labor and benefits. Maintenance Other $380,000 330,000 70,000 105,000 $885,000 Page 183 The crew would require additional training to handle the new vessel's more complex and sophisticated equipment. Training would. probably cost $50,000 next year. The estimated operating costs for the new vessel assume that it would be operated in the same way as the Vital Spark. However, the new vessel should be able to handle a larger load on some routes, which could generate additional revenues, net of additional out- of-pocket…
Problem 08.023- Determine which robot to select based on incremental rate of return A process control manager is considering two robots to improve materials-handling capacity in the production of rigid shaft couplings that make dissimilar drive components. Robot X has a first cost of $84,000, an annual M&O cost of $31,000, and $40,000 salvage value, and it will improve revenues by $96,000 per year. Robot Y has a first cost of $146,000, an annual M&O cost of $28,000, and $47,000 salvage value, and it will increase revenues by $125,000 per year. The company's MARR is 25.00% per year, and it uses a 3- year study period for economic evaluations. Calculate the incremental ROR, and identify the robot the manager should select. (Round the final answer to three decimal places.) The incremental ROR is 26.598 %. The manager should select robot Y
Godo
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Caspian Sea Drinks is considering the purchase of a plum juicer – the PJX5. There is no planned increase in production. The PJX5 will reduce costs by squeezing more juice from each plum and doing so in a more efficient manner. Mr. Bensen gave Derek the following information. What is the IRR of the PJX5? a. The PJX5 will cost $1.90 million fully installed and has a 10 year life. It will be depreciated to a book value of $158,307.00 and sold for that amount in year 10. b. The Engineering Department spent $11,647.00 researching the various juicers. c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $22,370.00. d. The PJX5 will reduce operating costs by $440,567.00 per year. e. CSD’s marginal tax rate is 31.00%. f. CSD is 72.00% equity-financed. g. CSD’s 19.00-year, semi-annual pay, 6.57% coupon bond sells for $1,000.00. h. CSD’s stock currently has a market value of $24.80 and Mr. Bensen believes the market estimates that dividends will grow at…
#1 Caspian Sea Drinks is considering the purchase of a plum juicer – the PJX5. There is no planned increase in production. The PJX5 will reduce costs by squeezing more juice from each plum and doing so in a more efficient manner. Mr. Bensen gave Derek the following information. What is the NPV of the PJX5? a. The PJX5 will cost $1.83 million fully installed and has a 10 year life. It will be depreciated to a book value of $164,562.00 and sold for that amount in year 10. b. The Engineering Department spent $26,999.00 researching the various juicers. c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $15,963.00. d. The PJX5 will reduce operating costs by $316,008.00 per year. e. CSD’s marginal tax rate is 36.00%. f. CSD is 59.00% equity-financed. g. CSD’s 20.00-year, semi-annual pay, 5.99% coupon bond sells for $1,013.00. h. CSD’s stock currently has a market value of $21.74 and Mr. Bensen believes the market estimates that dividends will grow…
As CEO of SeaSpray Marine, Rachel Souve knows it is important to control costs and to respond quickly to changes in the highly competitive boat-building industry. When IDG Consulting proposes that SeaSpray Marine invest in an ERP system, she forms a team to evaluate the proposal: the plant engineer, the plant foreman, the systems specialist, the human resources director, the marketing director, and the management accountant. A month later, management accountant Mike Chumura reports that the team and IDG estimate that if SeaSpray Marine implements the ERP system, it will incur the following costs: i (Click the icon to view SeaSpray's anticipated project costs.) The team estimates that the ERP system should provide several benefits: i (Click the icon to view SeaSpray's anticipated project benefits.) Read the requirements. Requirement 1. If the ERP installation succeeds, what is the dollar amount of the benefits? If the ERP installation succeeds, the dollar amount of the benefits is…
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