A firm must decide between two silicon layer chip designs from Intel. Their effective income tax rate is 40%, and Straight Line depreciation method is used. If the desired after-tax return on investment is 10% per year, which design should be chosen? State your assumptions. Design A Design B Capital Investment $1,000,000 $2,000,000 Salvage Value at end of life $1,000,000 $1,100,000 Annual revenue less expenses $200,000 $400,000 Useful Life 7years 6 years

A firm must decide between two silicon layer chip designs from Intel. Their effective income tax rate is 40%, and Straight Line depreciation method is used. If the desired after-tax return on investment is 10% per year, which design should be chosen? State your assumptions. Design A Design B Capital Investment $1,000,000 $2,000,000 Salvage Value at end of life $1,000,000 $1,100,000 Annual revenue less expenses $200,000 $400,000 Useful Life 7years 6 years

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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You are considering purchasing a new injection molding machine. This machinewill have an estimated service life of 10 years with a negligible salvage value.Its annual net operating cash flows are estimated to be $60,000. To expect a 15%rate of return on investment, what would be the maximum amount that should bespent on purchasing the injection molding machine?(a) $301,126 (b) $234,645(c) $600,000 (d) $126,450
Homer Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $143,000. The equipment will have an initial cost of $550,000 and have a 5-year life. If the salvage value of the equipment is estimated to be $18,000, what is the annual net cash flow? Multiple Choice 3 $125,000 $36,600 $249,400 $161,000
A manufacturer of video games develops a new game over two years. This costs $850,000 per year with one payment made immediately and the other at the end of two years. When the game is released, it is expected to make $1.20 million per year for three years after that. What is the net present value (NPV) of this decision if the cost of capital is 10%? OA. $1,462,112 OB. $1,005,202 OC. $913,820 OD. $1,736,258
Coronado, Inc. is considering purchasing equipment costing $39000 with a 7-year useful life. The equipment will provide cost savings of $8700 and will be depreciated straight-line over its useful life with no salvage value. Coronado Inc. requires a 9% rate of return. What is the approximate internal rate of return for this investment? Period 7 10% O 11% 000 9% 8% 7% 5.389 8% Present Value of an Annuity of 1 5.206 9% 5.033 10% 4.868 11% 4.712 14% 4.288
Assume that a company is considering purchasing a machine for $50,000 that will have a five year useful life and a $5,000 salvage value. The machine will lower operating costs by $16,500 per year. The company's required rate of return is 17%. The net present value of this investment is closest to
1. The manager in a canned food processing plant is trying to decide between two labeling machines. Assume an interest rate of 6%. Use annual cash flow analysis to determine which machine should be chosen. First cost Maintenance and operating costs Annual benefit Salvage value Useful life, in years Machine A $15,000 1,600 8,000 3,000 6 Machine B $25,000 400 13,000 6,000 10
3. Your company has been presented with an opportunity to invest in a project. The facts on the project are presented below: The project is expected to operate as shown for ten years. If management expects to make 15% on its investments before taxes, would you recommend this project? Solve the Problem using Present Worth Method. * Investment Required Salvage Value after 10 Years Gross Income Annual Operating Costs: Php 50,000,000 Php 18,000,000 Labor Php 2,500,000 Php 1,000,000 Php 1,000,000 Php 500,000 Materials, Licenses, Insurance, etc* Fuel and Other Costs Maintenance Costs
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
A manufacturer of automated optical inspection devices is deciding on a project to increase the productivity of the manufacturing processes. The estimated costs for the two feasible alternatives being compared are shown below. Use the internal rate of return (IRR) method to determine which alternative should be selected if the analysis period is 8 years and the company's MARR is 4% per year. Alternative M N Initial costs $30,000 $45,000 Net annual cash flow $4,500 $7,000 Life in years 8 8 (a) IRR of base alternative = (b) IRR of incremental cash flow = (c) Choose Alternative
Two altemnative machines will produce the same product, but one is capable of higher-quality work, which can be expected to return greater revenue. The following are relevant data. Determine which is the better alternative, assuming repeatability and using SL depreciation, an income-tax rate of 25%, and an after-tax MARR of 10%. Capital investment Life Machine A $20,000 12 years $3,500 Calculate the AW value for the Machine A. AWA (10%) = $(Round to the nearest dollar.) Terminal BV (and MV) Annual receipts Annual expenses Click the icon to view the interest and annuity table for discrete compounding when the MARR is 10% per year. Machine B $34,000 9 years $2,000 $144,000 $142,000 $190,000 $163,000
Esc You consider purchasing a new piece of equipment (7yr MACRS property) for your manufacturing process for $120,000. The equipment has a 6-year useful life and no salvage value. The equipment is expected to generate an additional $40,000 of net income before taxes and depreciation each year by using this upgraded system. The combined federal and state income tax rate= 35%. Annual inflation = 4%. a. Fill in the following table assuming MACRS depreciation rates Year 46°F Rain showers 0 1 F1 2 O 2 3 4 5 Pretax income 6 MACRS Taxable Depreciation income F2 - F3 + F4 Ⓡ b. If your MARR = 12%, should you purchase this system based on your real after-tax income? Why or why not? F5 8 C B Tax owed F6 Q Search G After tax income F7 Ca 7 F8 O Inflation adjustment factor O F9 ala LG F10 Real after tax income 0 A I THE F11 - 0 1 asod F12 + Prt Sc ScrLk Post-it sod Ins Post-it Del Backspace Post-it PgUp Home asod> Post-it Mumi 1-10 PgOn End Pause Break 11-15 11-15 C
1 Abusiness is considering the option of buying a plece of equipment that has a life of 5 years. The original cost of the equipment is RMS50,000 and the interest rate is 10%, It is expected that the net cash flow is RM15,000 annually and the salvage value is RM5,000. Required a. What is the NPV? b. Recommend whether the investment is feasible. 2 Talis Construction Company is considering developing factory buildings in Seremban. This project is mutually exclusive, where only one type of housing is to be selected. The initial capital investment is as follows for the three types of factory buildings: Three-storey Five-storey link RM400 million Initial capital investment RM200 millon

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