A firm is considering which of two mechanical devices to install to reduce costs in a particular situation. Both devices cost $1000 and have useful lives of 5 years and no salvage value. Device A can be expected to result in $300 savings annually. Device B will provide cost savings of $400 the first year but will decline $50 annually making the second-year savings $350, the third-year savings $300, and so forth. With interest at 7%, which device should the firm purchase?

A firm is considering which of two mechanical devices to install to reduce costs in a particular situation. Both devices cost $1000 and have useful lives of 5 years and no salvage value. Device A can be expected to result in $300 savings annually. Device B will provide cost savings of $400 the first year but will decline $50 annually making the second-year savings $350, the third-year savings $300, and so forth. With interest at 7%, which device should the firm purchase?

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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3. Schultz Company is considering purchasing a machine that would cost $478,800 and have a useful life of 5 years. The machine would reduce cash operating costs by $114,000 per year. The machine would have a salvage value of $6,200. Schultz Company prefers a payback period of 3.5 years or less.Required: a. Compute the payback period for the machine. What does this mean? b. Compute the return on average investment (ROI)
Modern Artifacts can produce keepsakes that will be sold for $50 each. Nondepreciation fixed costs are $2,500 per year, and variable costs are $30 per unit. The initial investment of $2,000 will be depreciated straight-line over its useful life of 5 years to a final value of zero, and the discount rate is 10%. Note: For all the requirements, do not round intermediate calculations. Round your answer up to the nearest whole unit. a. What is the accounting break-even level of sales if the firm pays no taxes? b. What is the NPV break-even level of sales if the firm pays no taxes? c. What is the accounting break-even level of sales if the firm's tax rate is 40%? d. What is the NPV break-even level of sales if the firm's tax rate is 40%? a. Acounting break-even level of sales b. NPV break-even level of sales c. Acounting break-even level of sales d. NPV break-even level of sales units units units units
Assume that a company is considering purchasing a machine for $50,500 that will have a five-year useful life and no salvage value. The machine will lower operating costs by $17,000 per year. The company's required rate of return is 18%. The profitability index for this investment is closest to: Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. Multiple Choice C O 0.95. 1.01. 1.05. 1.11.
Elijah Enterprises will need to upgrade the computer system in 6 years. They anticipate the upgrade to cost $95,300. If the discount rate is 15%, what will be the required yearly investment needed to obtain the money for the upgrade?Round your (1+R)^n value to 2 decimal places and use that number for your final amount required rounded to the nearest dollar. Future Value / (1+R)^n = Amount Required / = What would be required if the discount rate was 8%? Future Value / (1+R)^n = Amount Required / =
ASAP
Oriole Manufacturing is considering the purchase of new computerized equipment. The machine costs $66000 and would generate $19360 in annual cost savings over its 5-year life. At the end of 5 years, the equipment would have a $4400 salvage value. Oriole's required rate of return is 12%. Click here to view the factor table. Using the present value tables, the machine's net present value is (round to the nearest dollar) O $466. O $3789. O $6286. O $69789.

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