A company, Innovate Tools Ltd., is considering purchasing a newmachine for $500,000. The machine has a useful life of 8 years and willhave no salvage value at the end of its useful life. The company expectsthe machine to generate an additional $120,000 in net cash inflowsannually. The company's cost of capital is 10%. Calculate thefollowing:1. Annual depreciation expense (using straight-line method).2. Net present value (NPV) of the machine using the company's costof capital.3. Payback period for the machine.4. Internal Rate of Return (IRR).

The problem involves the various capital budgeting techniques such as the NPV, payback period and…

Answered: A company, Innovate Tools Ltd., is…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 11PA: Gallant Sports s considering the purchase of a new rock-climbing facility. The company estimates...

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The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
Taos Productions bought a piece of equipment for $79,860 that will last for 5 years. The equipment will generate net operating cash flows of $20,000 per year and will have no salvage value at the end of its life. What is the internal rate of return?
Cinemar Productions bought a piece of equipment for $55,898 that will last for 5 years. The equipment will generate net operating cash flows of $14,000 per year and will have no salvage value at the end of its life. What is the internal rate of return?
Gallant Sports s considering the purchase of a new rock-climbing facility. The company estimates that the construction will require an initial outlay of $350,000. Other cash flows are estimated as follows: Assuming the company limits its analysis to four years due to economic uncertainties, determine the net present value of the rock-climbing facility. Should the company develop the facility if the required rate of return is 6%?
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is planning to acquire a new machine at a total cost of P360,000. The estimated life of the machine is 6 years with no salvage value. The straight-line method of depreciation will be used. NUBD estimates that the annual cash flow from operations, before income taxes, from using this machine amounts to P90,000. Assume that NUBD’s cost of capital is 8% and the income tax rate is 40%. (Use 3 decimal places for the PV factors)What would be the net present value?
NUBD Co. is planning to acquire a new machine at a total cost of P360,000. The estimated life of the machine is 6 years with no salvage value. The straight-line method of depreciation will be used. NUBD estimates that the annual cash flow from operations, before income taxes, from using this machine amounts to P90,000. Assume that NUBD’s cost of capital is 7% and the income tax rate is 40%. (Use 3 decimal places for the PV factors)What would be the net present value?
Sad Company is considering the purchase of a new machine that would cost $80,000. The machine would have a useful life of 8 years. Sad Company plans on using straight-line depreciation with an estimated salvage value of $0. Sad Company has a hurdle rate of 12% and is subject to an income tax rate of 80%. The annual cash income is estimated to be $50,000. PV . 1- The Accounting Rate of Return (AROR) is: 10 % 11 % 12 % 9 % 8 % 2-The Net Present Value (NPV) is: $10,424 $9,424 $11,424 $8,424 $11,424 3-The Profitability Index (PI) is: 1.02 1.12 1.22 0.92 0.82 The Payback period is: A. 4.044 years B. 4.144 years C. 4.244 years D. 4.344 years E. 4.444 years Using interpolation, the Internal Rate of Return (IRR) is: 14.4 % 13.4 % 12.4 % 15.4 % 16.4 %
Bartlett Car Wash Co. is considering the purchase of a new facility. It would allow Bartlett to increase its net income by $113,216 per year. Other information about this proposed project follows: Initial investment $ 524,150 Useful life 10 years Salvage value $ 55,000 Assume straight line depreciation method is used. Required: 1. Calculate the accounting rate of return for Bartlett. (Round your percentage answer to 2 decimal places.) 2. Calculate the payback period for Bartlett. (Round your answer to 2 decimal places.)
← Daily Enterprises is purchasing a $10.5 million machine. It will cost $55,000 to transport and install the machine. The machine has a depreciable life of five years and will have no salvage value. If Daily uses straight-line depreciation, what are the depreciation expenses associated with this machine? The yearly depreciation expenses are $. (Round to the nearest dollar.)

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