-$427,109.10 ALUM Inc. uses high-tech equipment to produce specialized products. Each one of its machines costs $2,345,000 to purchase plus an additional $125,000 a yearto operate. The machines have a four-year (4) life after which they are worthless. What is the equivalent annual cost of one these machines if the required return is9.5 percent?Multiple Choice-$2,457.902.50-$756,947.08-$891,203.44-$856,788.04

Cost of Machine = $2345000Required rate of return = 9.5%Life of the machine = 4 years

Answered: ALUM Inc. uses high-tech equipment to…

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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Scription Inc. has additional cash available for investment and considers replacing the old factory equipment with a new one. There are two options for Scription. One option is to purchase a new equipment from Supplier A for $100,000. Supplier A equipment has a useful life of 10 years with after-tax residual value, $5,000 and can save $60,000 annually. The other option is with Supplier B. Supplier B would charge $120,000 for a new equipment. Supplier B equipment would generate $50,000 annual cost saving. Its useful life is 12 years and the after-tax residual value of $6,000. Assume the required rate of return for both options is 8%. Using NPV method, determine which option is the more attractive. Must show your computation steps. Use the appropriate tables in Appendix A to obtain the relevant present value factor and round up your final answer to the nearest dollar.
Inc. uses fine-tuned equipment to produce electronic products. Each one of its machines costs $10,000,000 to purchase plus an additional $900,000 a year to operate. The machines have a 6-year (6) life after which they are worthless. What is the equivalent annual cost of one these machines if the required return is 11.4 percent?
Beryl's Iced Tea currently rents a bottling machine for $50,000 per year, including all maintenance expenses. It is considering purchasing a machine instead and is comparing two options: a. Purchase the machine it is currently renting for $155,000. This machine will require $23,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $260,000. This machine will require $17,000 per year in ongoing maintenance expenses and will lower bottling costs by $14,000 per year. Also, $36,000 will be spent up front to train the new operators of the machine. Suppose the appropriate discount rate is 9% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the cost of the rental machine. Assume also that the machines will be depreciated via the straight-line method over seven years and that they have a 10-year life with a negligible salvage value. The marginal corporate tax rate is 20%. Should Beryl's Iced…
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Big Rock Brewery currently rents a bottling machine for $55,000 per year, including all maintenance expenses. The company is considering purchasing a machine instead and is comparing two options: a. Purchase the machine it is currently renting for $165,000. This machine will require $20,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $260,000. This machine will require $16,000 per year in ongoing maintenance expenses and will lower bottling costs by $11,000 per year. Also, $39,000 will be spent upfront in training the new operators of the machine. Suppose the appropriate discount rate is 9% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the rental of the machine. Assume also that the machines are subject to a CCA rate of 45% and there will be a negligible salvage value in ten year's time (the end of each machine's life). The marginal corporate tax rate is 35%. Should Big Rock…
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