Acme Ltd, a scrap metal dealer, is considering the acquisition of a 'Roadrunner' metal compactor atthe cost of $25,000. The compactor is estimated to have zero value at the end of its five-year life. Itwill return the following annual net cash flows.Year12345O $4,977O - $4,977O $6,652Net cash flow($)O -$6,652600010,00012,000Depreciation is $5000 per annum and the company tax rate is 40 per cent.Compute the project's NPV. If the project's after-tax required rate of return is 8 per cent per annum,should the project be adopted?15,0007000

NPV is also known as Net Present Value. It is a capital budgeting techniques which help in decision…

Answered: Acme Ltd, a scrap metal dealer, is…

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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Similar questions

Vandezande Incorporated is considering the acquisition of a new machine that costs $470,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash flows that would be produced by the machine are (ignore Income taxes.): Year 1 Year 2 Year 3 Year 4 Year 5 Incremental Net Operating Income $ 78,000 $ 84,000 $ 95,000 $ 58,000 $ 100,000 Assume cash flows occur uniformly throughout a year except for the initial investment. The payback period of this investment is closest to: (Round your answer to 1 decimal place.) Multiple Choice 4.1 years 5.0 years 2.9 years Incremental Net Cash Flows $ 156,000 $ 163,000 $ 175,000 $ 160,000 $ 162,000 21 years
Omega Limited intends purchasing a new machine and has a choice between the following two machine: Machine ABC: The cost of this machine is R200 000 with an expected economic life of 5 years and a residual value of R20 000. Depreciation is calculated on the straight-line method. The expected new cash flows are as follows: Year 1 R68 000 Year 2 R54 000 Year 3 R64 000 Year 4 R60 000 Year 5 R52 000 Machine XYZ: The cost of machine XYZ is R220 000. It has an expected economic life of 5 years with no residual value. Depreciation is calculated on the straight-line method. The expected new cash flows are R66 000 per annum every year for the 5-year period. Omega Limited estimates that its cost of capital is 14%. Required: 2.1 Calculate the payback period for machine XYZ (answers must be expressed years, months and days) 2.2 Calculate the accounting rate of return for Machine ABC 2.3 Explain two advantages of using the accounting rate of return in capital…
M ΟΣ Mu Bonita Inc. is considering purchasing a machine that costs $192000 and is estimated to have no salvage value at the end of its 4-year useful life. The straight-line method of depreciation is to be used. Projected annual cash inflows and outflows are as follows: Vi Expected Annual Expected Annual Year Cash Inflows Cash Outflows 1 $79000 $22000 2 97000 32000 3 104000. 34000 4 84000 27000 The cash payback period is O 2.25 years. O2.59 years. O 3.00 years. O 3.20 years. Mu zo Qu Mult 좋은 Qu Mul 좋은 좋은 Qu Mul Que Multi
The management of Ortega Manufacturing has three different proposals under consideration. The Accounting Department has prepared the following information: Proposal B $ 2,450,000 Proposal C $ 2,055,000 Initial investment Useful life of equipment Estimated salvage value Payback period Net present value discounted at 15%* Which of the above proposals generates the greatest annual cash flow? Multiple Choice Proposal A Proposal B Proposal C Proposal A $ 3,100,000 Cannot be determined with the given information 7 Years $0 4.2 Years $ (30,000) 7 Years $ 400,000 4.4 Years $ 21,600 7 Years $ 100,000 4 Years $ 15,800
N1.
Emma Company is considering buying a machine for $206,000 with an estimated life of 15 years and no salvage value. The straight-line method of depreciation will be used. The machine is expected to generate net income of $20,500 each year. The cash payback on this investment is Round your answer 2 decimal places Selected Answer: 6,766.67 Correct Answer: 6.02 ± 0.05
. Flexsteel Industries manufactures furniture for the retail, contract, and recreational vehicle furniture markets. The company is considering the purchase of a new piece of equipment, which would have an initial cost of $1,000,000 and a 5-year life. There is no salvage value for the equipment. The increase in cash flow each year of the equipment's life would be as follows: Year 1 Year 2 Year 3 Year 4 Year 5 $395,000 $ 370,000 $ 305,000 $ 250,000 $ 205,000 What is the payback period?
The following present value factors are provided for use in this problem. Periods 1 2 3 4 Present Value of $1 at 8% 0.9259 0.8573 0.7938 0.7350 Xavier Co. wants to purchase a machine for $37,800 with a four year life and a $1,200 salvage value. Xavier requires an 8% return on investment. The expected year-end net cash flows are $12,800 in each of the four years. What is the machine's net present value? Multiple Choice O O $4,595. $(5,477). $(4,595). Present Value of an Annuity of $1 at 8% 0.9259 1.7833 2.5771 3.3121 $43,277.
Rihanna Company is considering purchasing new equipment for $440,000. It is expected that the equipment will produce net annual cash flows of $55,000 over its 10-year useful life. Annual depreciation will be $44,000. Compute the cash payback period. (Round answer to 1 decimal place, e.g. 10.5.) Cash payback period years
1666
Rocco Manufacturing is considering following two investment proposals: Proposal X Proposal Y Investment $740,000 $508,000 Useful life 5 years 4 years Estimated annual net cash inflows received at the end of each year $154,000 $92,000 Residual value $66,000 $0 Depreciation method Straight-line Straight-line Annual discount rate 10% 9% Compute the present value of the future cash inflows from Proposal X.
Bella Ltd wishes to invest in either project X or project Y, and has provided you with the following information. Project X Project Y Initial Investment Shs. 20,000 Shs. 30,000 Estimated Life 5 years 5 years Scrap Value Shs. 1,000 Shs. 2,000 The profits before depreciation and after taxation (cash flows) are as follows: Year 1 Year 2 Year 3 Year 4 Year 5 Project x Shs. Shs. Shs. Shs. Shs. 5,000 10,000 10,000 3,000 2,000 Project y 20,000 10,000 5,000 3,000 2,000…

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