A major piece of your company's manufacturing equipment has failed and you need to buy a replacement. There are three alternatives. Which one should be selected based on rate of return analysis if the company MARR is 10%? You only need to buy one. Option B $120,000 $32,000 $20,000 б уears 2. Option A $100,000 $40,000 $30,000 3 уears Option C $130,000 $50,000 $30,000 6 years Initial Cost Annual Benefit Salvage Value Life Rate of Return 12% 9% 12.5%

A major piece of your company's manufacturing equipment has failed and you need to buy a replacement. There are three alternatives. Which one should be selected based on rate of return analysis if the company MARR is 10%? You only need to buy one. Option B $120,000 $32,000 $20,000 б уears 2. Option A $100,000 $40,000 $30,000 3 уears Option C $130,000 $50,000 $30,000 6 years Initial Cost Annual Benefit Salvage Value Life Rate of Return 12% 9% 12.5%

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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YOU ARE A FINANCIAL ANALYST FOR A COMPANY THAT IS CONSIDERING A NEW PROJECT. IF THE PROJECT IS ACCEPTED, IT WILL USE A FRACTION OF A STORAGE FACILITY THAT THE COMPANY ALREADY OWNS BUT CURRENTLY DOES NOT USE. THE PROJECT IS EXPECTED TO LAST 10 YEARS, AND THE ANNUAL DISCOUNT RATE IS 10% (COMPOUNDED ANNUALLY). YOU RESEARCH THE POSSIBILITIES, AND FIND THAT THE ENTIRE STORAGE FACILITY CAN BE SOLD FOR €100,000 AND A SMALLER (BUT BIG ENOUGH) FACILITY CAN BE ACQUIRED FOR €40,000. THE BOOK VALUE OF THE EXISTING FACILITY IS €60,000, AND BOTH THE EXISITING AND THE NEW FACILITIES (IF IT IS ACQUIRED) WOULD BE DEPRECIATED STRAIGHT LINE OVER 10 YEARS (DOWN TO A ZERO BOOK VALUE). THE CORPORATE TAX RATE IS 40%. DISCUSS WHAT IS THE OPPORTUNITY COST OF USING THE EXISTING STORAGE CAPACITY?
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1. Production has indicated that they can produce widgets at a cost of P4.00 each if they lease new equipment at a cost of P10,000. Marketing has estimated the number of units they can sell at a number of prices (Php4000) Which price/volume option will allow the firm to avoid losing money on this project? (Please show and explain solution)
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Xanadu Mining is considering three mutually exclusive alternatives, as shown in the table below. MARR is 10%/year. Solve a. What is the present worth of each alternative? b. Which alternative should be recommended?
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