1. The Comil Corporation recently purchased a new machine for its factory operations at a cost of $390,875. The investment is expected to generate $125,000 in annual cash flows for a period of five years. The required rate of return is 12%. The old machine has a remaining life of five years. The new machine is expected to have zero value at the end of the five- year period. The disposal value of the old machine at the time of replacement is zero. What is the internal rate of return? A) 15% B) 16% C) 17% D) 18% 2. The Zeron Corporation wants to purchase a new machine for its factory operations at a cost of $380,000. The investment is expected to generate $125,000 in annual cash flows for a period of four years. The required rate of return is 12%. The old machine can be sold for $20,000. The machine is expected to have zero value at the end of the four-year period. What is the net present value of the investment? Would the company want to purchase the new machine? Income taxes are not considered. A) $19,750; yes B) $35,775; no C) $360,000; yes D) $163,005; no Sam's Structures desires to buy a new crane and accessories to help move and install modular buildings. The machine sells for $75,000 and requires working capital of $10,000. Its estimated useful life is six years and it will have a salvage value of $17,560. Recovery of working capital will be $10,000 at the end of its useful life. Annual cash savings from the purchase of the machine will be $20,000. Required: a. Compute the net present value at a 12% required rate of return. b. Compute the internal rate of return. C. Determine the payback period of the investment.
1. The Comil Corporation recently purchased a new machine for its factory operations at a cost of $390,875. The investment is expected to generate $125,000 in annual cash flows for a period of five years. The required rate of return is 12%. The old machine has a remaining life of five years. The new machine is expected to have zero value at the end of the five- year period. The disposal value of the old machine at the time of replacement is zero. What is the internal rate of return? A) 15% B) 16% C) 17% D) 18% 2. The Zeron Corporation wants to purchase a new machine for its factory operations at a cost of $380,000. The investment is expected to generate $125,000 in annual cash flows for a period of four years. The required rate of return is 12%. The old machine can be sold for $20,000. The machine is expected to have zero value at the end of the four-year period. What is the net present value of the investment? Would the company want to purchase the new machine? Income taxes are not considered. A) $19,750; yes B) $35,775; no C) $360,000; yes D) $163,005; no Sam's Structures desires to buy a new crane and accessories to help move and install modular buildings. The machine sells for $75,000 and requires working capital of $10,000. Its estimated useful life is six years and it will have a salvage value of $17,560. Recovery of working capital will be $10,000 at the end of its useful life. Annual cash savings from the purchase of the machine will be $20,000. Required: a. Compute the net present value at a 12% required rate of return. b. Compute the internal rate of return. C. Determine the payback period of the investment.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:1. The Comil Corporation recently purchased a new machine for
its factory operations at a cost of $390,875. The investment is
expected to generate $125,000 in annual cash flows for a
period of five years. The required rate of return is 12%. The
old machine has a remaining life of five years. The new
machine is expected to have zero value at the end of the five-
year period. The disposal value of the old machine at the time
of replacement is zero. What is the internal rate of return?
A) 15%
B) 16%
C) 17%
D) 18%
2. The Zeron Corporation wants to purchase a new machine
for its factory operations at a cost of $380,000. The
investment is expected to generate $125,000 in annual cash
flows for a period of four years. The required rate of return
is 12%. The old machine can be sold for $20,000. The
machine is expected to have zero value at the end of the
four-year period. What is the net present value of the
investment? Would the company want to purchase the new
machine? Income taxes are not considered.
A) $19,750; yes
B) $35,775; no
C) $360,000; yes
D) $163,005; no
Sam's Structures desires to buy a new crane and accessories to
help move and install modular buildings. The machine sells
for $75,000 and requires working capital of $10,000. Its
estimated useful life is six years and it will have a salvage
value of $17,560. Recovery of working capital will be
$10,000 at the end of its useful life. Annual cash savings from
the purchase of the machine will be $20,000.
Required:
a. Compute the net present value at a 12% required rate
of return.
b. Compute the internal rate of return.
C.
Determine the payback period of the investment.
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