A polyurethane company is decided to purchase a motorized feature for pulling parts from an injection moulding machine. The use of the new feature is anticipated to cause a decrease in the production costs by RM 200,000 per year in the first 2 years and by RM 300,000 per year in the next 3 years. By drawing a cash flow diagram, evaluate the present worth of the cost saving if the interest rate on the investment is 15% per year.

A polyurethane company is decided to purchase a motorized feature for pulling parts from an injection moulding machine. The use of the new feature is anticipated to cause a decrease in the production costs by RM 200,000 per year in the first 2 years and by RM 300,000 per year in the next 3 years. By drawing a cash flow diagram, evaluate the present worth of the cost saving if the interest rate on the investment is 15% per year.

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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Maroc Group of Companies (MGC) Ltd is considering an investment in an equipment costing GHȻ80,000. The equipment would attract a 25% annual written down allowance. The operating cash flows are expected to be as follows: Year GHC 1 30,000 2 40,000 3 20,000 The investment would also require additional working capital of GHȻ25,000 in the year of investment which will be recovered at the end of the project. The project is expected to have a useful life of three years after which the investment would be scrapped at a value of GHȻ50,000. The rate of tax on profits is 30%. The company’s cost of capital is 8%. As a financial manager of MGC: Required: 1. Estimate the cost of capital for MGC 2. Assess the viability of the investment using the Net Present Value (NPV) approach 3. Determine the Modified Internal Rate of Return (MIRR)
Pharoah Company is considering a long-term investment project called ZIP. ZIP will require an investment of $123,338. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $82,500, and annual cash outflows would increase by $41,250. The company's required rate of return is 12%. Click here to view the factor table. Calculate the internal rate of return on this project. (Round answers to O decimal places, e.g. 15%.) Internal rate of return on this project is between Determine whether this project should be accepted? The project be accepted. % and %.
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Maroc Group of Companies (MGC) Ltd is considering an investment in an item of equipment costing GHȻ80,000. The equipment would attract a 25% annual written down allowance. The operating cash flows are expected to be as follows: Year GHȻ 1 30,000 2 40,000 3 20,000 The investment would also require additional working capital of GHȻ25,000 in the year of investment which will be recovered at the end of the project. The project is expected to have a useful life of three years after which the investment would be scrapped at a value of GHȻ50,000. The rate of tax on profits is 30%. The company’s cost of capital is 8%. As a financial manager of MGC: Estimate the cost of capital for MGC Assess the viability of the investment using the Net Present Value (NPV) approach Determine the Modified Internal Rate of Return (MIRR)
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1. Solve the following three independent scenarios: A. If a copy center is considering the purchase of a new copy machine with an initial investment cost of $150,000 and the center expects an annual net cash flow of $20,000 per year, what is the payback period? Payback period = ? years. Round your Payback Period (PB) answer to one decimal place (i.e. 12.3). B. If a garden center is considering the purchase of a new tractor with an initial investment cost of $120,000, and the center expects a return of $30,000 in year one, $20,000 in years two and three, $15,000 in years four and five, and $10,000 in year six and beyond, what is the payback period? Payback period = ? years. Round your Payback Period (PB) answer to one decimal place (i.e. 12.3). C. A mini-mart needs a new freezer and the initial investment will cost $300,000. Incremental revenues, including cost savings, are $200,000, and incremental expenses, including depreciation, are $125,000. There is no salvage value. What is…

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