Example#19 SW#A piece of new equipment has been proposed by engineers to increase the productivity of a certainmanual welding operation. The investment cost is $25,000, and the equipment will have a market(salvage) value of $5,000 at the end of its expected life of five years. Increased productivityattributable to the equipment will amount to $8,000 per year after extra operating costs have beensubtracted from the value of the additional production. Suppose that E=MARR= 20% per year. Whais the project's ERR, and is the project acceptable? Create a Cashflow diagram.IND

We have to find the expected rate of return. In a way, we have to find the IRR. We will use excel to…

Answered: A piece of new equipment has been…

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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Lesego Ltd is considering an investment in a new machine for the production of a new product, X. There are two possibilities, Machine A and Machine B. Both product X and the machine would have an expected life of five years.The following information is available:Product X Selling price $50Variable cost 32Increase in fixed overhead (excluding depreciation of the new machine) is $90,000 per year.YearSales units 1 10,0002 15,0003 20,0004 20,0005 5,000 Machine A Machine BInitial cost ($000) 550 480Residual value 50 30The company’s cost of capital is 10%,Required:Evaluate each machine, using the following methods:Accounting rate of return Payback;Net present value. Discuss the importance of capital budgeting in organisations.
Assume that United Technologies is evaluating a proposal to change the company's manual design system to a computer-aided design (CAD) system. The proposed system is expected to save 10,000 design hours per year; an operating cost savings of $50 per hour. The annual cash expenditures of operating the CAD system are estimated to be $250,000. The CAD system requires an initial investment of $500,000. The estimated life of this system is five years with no salvage value. The tax rate is 40 percent. United Technologies has a cost of capital of 20 percent.Assume that management intends to use double-declining balance depreciation with a switch to straight-line depreciation (applied to any undepreciated balance) starting in Year 4.Determine the project's net present value
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
Solve for the rate of return and Explain
$500,000 is invested in equipment having a negligible salvage value regardless of the number of years used. O&M costs equal $125,000 the first year and increase $25,000 per year. Based on a MARR of 10%, what are the optimum replacement interval and minimum EUAC?
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
1
6. The Imperial Chemical Company is considering purchasing a chemical analysis machine worth $13,000. Although the purchase of this machine will not produce any increase in sales revenues, it will result in a reduction of labour costs. In order to operate the machine properly, it must be calibrated each year. The machine has an expected life of 6 years, after which it will have no salvage value. The following table summarizes the annual savings in labour cost and the annual maintenance costs in calibration over 6 years: Net Cash Flow ($) Costs ($) Year (n) 0 Savings ($) 13,000 -13,000 1 2,300 6,000 3,700 2 2,300 7,000 4,700 3 2,300 9,000 6,700 4 2,300 9,000 6,700 5 2,300 9,000 6,700 6 2,300 9,000 6,700 Find the internal rate of return for this project. [6]
Salty Nuts, Inc. must buy a new nut-shelling machine. The industrial engineer has collected the following information concerning the apparent best alternative. Calculate the net future worth of the alternative if the MARR is 6%.
A newly hired Sanitary Engineer was made to evaluate the following conditions; An equipment package that costs P500,000 will last for 20 years and have a scrap value at that time of P50,000. repairs will average P30,000 per year. The second equipment package will produce the same units per year. It costs P1,500,000 and the salvage value is P150,000 at the end of 30 years. The repairs for this machine will average P25,000 per year. If money is worth 8% effective, what is the annual cost savings or additional costs if the annual cost method is to be used? (Enter the absolute value of your answer) Note: answer should be in full decimal places, do not round off. For example, the value of x = 0.123456789, Annual cost = 100,000 (0.123456789) = 12,345.6789
please answer with full work explanation calculation etc. please answer correctly KB. Chicago Co. is interested in purchasing a machine that would improve its operational efficiency. The cost is $200,000 with an estimated residual value of $20,000 and a useful life of eight years. Cash inflows are expected to increase by $40,000 a year. The company's minimum rate of return is 10 percent.The net present value of the project is
A factory has the following alternative: buy a used machine at a price of $10,000.00 or a new machine at a price of $30,000.00. Annual labor costs are $20,000 for the used machine and $15,000 for the new machine. The annual energy costs are $8,000.00 and $10,000.00 respectively. In the case of the used machine, the salvage value after 5 years would be nil, while that of the new machine would be equal to $5,000.00. Considering an MARR of 20% per year what is the best alternative? Use the equivalent annual cost

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