18. Buhler Industries is a farm implement manufacturer. Management is currentlyevaluating a proposal to build a plant that will manufacture lightweight tractors.Buhler plans to use a cost of capital of 12% to evaluate this project. Based on exten-sive research, it has prepared the following incremental free cash flow projections(in millions of dollars):Year 0Years 1-9Year 10RevenuesManufacturing expenses(other than depreciation)Marketing expensesCCAEBITTaxes (35%)Unlevered net income+ CCA100.0100.0-35.0-35.0-10.0-10.0???????2222.???-Increases in net working capital-5.0-5.0Capital expenditures+ Continuation valueFree cash flow- 150.0+12.0- 150.0??for capital expenditures is 10%, Assume assets are never sold.

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Answered: 18. Buhler Industries is a farm…

Principles of Accounting Volume 2

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ISBN:9781947172609

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Chapter11: Capital Budgeting Decisions

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Problem 18EB: Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the...

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Buhler Industries is a farm implement manufacturer. Management is currently evaluating a proposal to build a plant that will manufacture lightweight tractors. Buhler plans to use a cost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following incomplete incremental free cash flow projections (in millions of dollars): K Free Cash Flow ($000,000s) Year 0 Years 1-9 Year 10 91.00 - 34.00 91.00 -34.00 - 8.00 - 8.00 ? ? ? ? Revenues - Manufacturing expenses (other than depreciation) -Marketing expenses - CCA = EBIT -Taxes (35%) = Unlevered net income + CCA ??? ??? Using the indirect method requires a separate calculation of the CCA tax shield. What is the present value of the CCA tax shield? The present value of the CCA tax shield is $ million. (Round to two decimal places.)
In your first job with TBL Inc. your task is to consider a new project whose data are shown below. What is the project's Year 1 cash flow? The annual operating cash flows of the project can be calculated as follows: OCF = {[Sales - Operating Costs]*(1-Tax Rate)} + (Depreciation * Tax Rate) Sales revenues $225,250 Depreciation $78,847 Other operating costs $92,000 Tax rate 18%
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Giant Machinery Ltd is considering investing in one of the two following Projects to buy newequipment. Each project will last 5 years and have no salvage value at the end. The company’s requiredrate of return for all investment projects is 9%. The cash flows of the projects are provided below.Project 1 Project 2Cost $175,000 $185,000Future Cash FlowsYear 1Year 2Year 3Year 4Year 576,00083,00067,00065,00055,00087,00078,00069,00065,00057,000Required:a) Identify which project should the company accept based on the NPV method. (Note: Please round up the result of each calculation of PV to 2 decimal places only for simplification)b) Identify which project should the company accept based on the simple payback method if thepayback criteria is a maximum of 2 years. c) Which project Giant Machinery should choose if two methods are in conflict.
Bunnings Ltd is considering investing in one of the two following projects to buy new equipment. Each equipment will last 5 years and have no salvage value at the end. The company's required rate of return for all investment projects is 8%. The cash flows of the projects are provided below.Equipment 1 Equipment 2Cost $186,000 $195,000Future Cash FlowsYear 1Year 2Year 3Year 4Year 586 00093 00083 00075 00055 00097 00084 00086 00075 00063 000Required:a) Identify which option of equipment should the company accept based on Profitability Index? b) Identify which option of equipment should the company accept based on discounted pay back method if the payback criterion is maximum 2 years?
Giant Machinery Ltd is considering to invest in one of the two following Projects to buy a new equipment. Each project will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 9%. The cash flows of the projects are provided below. Project 1 Project 2Cost $175,000 $185,000Future Cash FlowsYear 1 76,000 83,000Year 2 67,000 65,000Year 3 55,000 87,000Year 4 78,000 69,000Year 5 65,000 57,000Required:a) Identify which project should the company accept based on NPV method. (Note: Please round up the result of each calculation of PV to 2…
What is the accounting rate of return for Project B? (Round your answer to two decimal places. Martin Production Co. is considering investing in specialized equipment costing $975,000. The equipment has a useful life of five years and a residual value of $75,000. Depreciation is calculated using the straight-line method. The expected net cash inflows from the investment are given below: Year 1 $275,000 Year 2 220,000 Year 3 200,000 Year 4 200,000 Year 5 180,000 $1.075.000 Compute the accounting rate of return on the investment, Show your calculations.
Payback, Accounting Rate of Return, Net Present Value, Internal Rate of Return Blaylock Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of trenching machines. The outlay required is $700,000. The NC equipment will last five years with no expected salvage value. The expected after-tax cash flows associated with the project follow: Year Cash Revenues Cash Expenses 1 $1,300,000 $1,100,000 2 1,300,000 1,100,000 3 1,300,000 1,100,000 4 1,300,000 1,100,000 5 1,300,000 1,100,000 Required: Compute the investment's Net Present Value, assuming a required rate of return of 10 percent. Round present value calculations and your final answer to the nearest dollar.NPV = $fill in the blank 1
Blossom Industries management is planning to replace some existing machinery in its plant. The cost of the new equipment and the resulting cash flows are shown in the accompanying table. The firm uses an 18 percent discount rate for projects like this. Should management go ahead with the project? Year Cash Flow 0 -$2,970,000 1 787,610 2 869,600 3 1,030,500 4 1,125,360 5 1,354,000 What is the NPV of this project? (Enter negative amounts using negative sign e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.) The NPV is $enter The NPV in dollars rounded to 0 decimal places Should management go ahead with the project? The firm should select an option rejectaccept the project.
Payback, Accounting Rate of Return, Net Present Value, Internal Rate of Return Blaylock Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of trenching machines. The outlay required is $800,000. The NC equipment will last five years with no expected salvage value. The expected after-tax cash flows associated with the project follow: Year Cash Revenues Cash Expenses 1 $1,300,000 $1,100,000 2 1,300,000 1,100,000 3 1,300,000 1,100,000 4 1,300,000 1,100,000 5 1,300,000 1,100,000 Required: Compute the payback period for the NC equipment. Round your answer to one decimal place. Payback period = fill in the blank, years
Payback, Accounting Rate of Return, Net Present Value, Internal Rate of Return Woodard Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of trenching machines. The outlay required is $800,000. The NC equipment will last five years with no expected salvage value. The expected after-tax cash flows associated with the project follow: Year Cash Revenues Cash Expenses 1 2 3 4 5 $1,600,000 1,600,000 1,600,000 1,600,000 1,600,000 $1,300,000 1,300,000 1,300,000 1,300,000 1,300,000 Required: Compute the payback period for the NC equipment. Round your answer to one decimal place. Payback period = years
Payback, Accounting Rate of Return, Net Present Value, Internal Rate of Return Blaylock Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of trenching machines. The outlay required is $800,000. The NC equipment will last five years with no expected salvage value. The expected after-tax cash flows associated with the project follow: Year Cash Revenues Cash Expenses 1 $1,300,000 $992,000 2 1,300,000 992,000 3 1,300,000 992,000 4 1,300,000 992,000 5 1,300,000 992,000 Required: Compute the NC equipment’s ARR. Enter as a percent and round your answer to one decimal place.Accounting rate of return =

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