1.Beloit Co. is a manufacturer of mini-doughnut machine makers. Early in 2018 a customer asked Beloit to quote a price for a custom-designed doughnut machine to be delivered by the end of 2018. Once it is purchased, the customer intends to place the machine in service in January 2019 and will use it four years. The expected annual operating cash flow is estimated to be $140,000. The expected salvage value of the equipment at the end of five years is about 12% of the initial purchase price. To expect an 18% required rate of return on investment, what is the maximum amount that should be spent on purchasing the doughnut machine? Ans. P= $397,456.48
1.Beloit Co. is a manufacturer of mini-doughnut machine makers. Early in 2018 a customer asked Beloit to quote a price for a custom-designed doughnut machine to be delivered by the end of 2018. Once it is purchased, the customer intends to place the machine in service in January 2019 and will use it four years. The expected annual operating cash flow is estimated to be $140,000. The expected salvage value of the equipment at the end of five years is about 12% of the initial purchase price. To expect an 18% required rate of return on investment, what is the maximum amount that should be spent on purchasing the doughnut machine? Ans. P= $397,456.48
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
Related questions
Question
I want you to show and explain the explanation below. The answer is correct but i can't understand how it come up with the right answer. Attached pic below is the problem
The annual estimated cash flow is $140,000.
The salvage value will be 12% of the initial price after 5 years.
The discount rate (r) is 18%
Let us assume the initial price of the doughnut machine be X.
PV of
The maximum purchase price of the doughnut machine is $397,456.48.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education