AMT, Inc., is considering the purchase of a digital camera for maintenance of design specifications by feeding digital pictures directly into an engineering workstation where computer-aided design files can be superimposed over the digital pictures. Differences between the two images can be noted, and corrections, as appropriate, can then be made by design engineers. a. You have been asked by management to determine the PW of the EVA of this equipment, assuming the following estimates: capital investment = $362,000; market value at end of year six = $115,000; annual revenues = $111,000; annual expenses = $10,000; equipment life = 6 years; effective income tax rate = 27%; and after-tax MARR = 10% per year. MACRS depreciation will be used with a five-year recovery period. b. Compute the PW of the equipment's ATCFS. Click the icon to view the GDS Recovery Rates (r.) for the 5-year property class. Click the icon to view the interest and annuity table for discrete compounding when the MARR is 10% per year. a. Calculate the PW of the EVA of this equipment. PWEVA (10%) =S (Round to the nearest hundreds.)

AMT, Inc., is considering the purchase of a digital camera for maintenance of design specifications by feeding digital pictures directly into an engineering workstation where computer-aided design files can be superimposed over the digital pictures. Differences between the two images can be noted, and corrections, as appropriate, can then be made by design engineers. a. You have been asked by management to determine the PW of the EVA of this equipment, assuming the following estimates: capital investment = $362,000; market value at end of year six = $115,000; annual revenues = $111,000; annual expenses = $10,000; equipment life = 6 years; effective income tax rate = 27%; and after-tax MARR = 10% per year. MACRS depreciation will be used with a five-year recovery period. b. Compute the PW of the equipment's ATCFS. Click the icon to view the GDS Recovery Rates (r.) for the 5-year property class. Click the icon to view the interest and annuity table for discrete compounding when the MARR is 10% per year. a. Calculate the PW of the EVA of this equipment. PWEVA (10%) =S (Round to the nearest hundreds.)

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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An engineer proposes to spend $95,000 on a capital project to upgrade a package delivery system. The project is expected to have labor savings of $20,000 a year plus reduce scrap costs by $5000 a year. There is expected to be no salvage value at the end of the equipment life, which is anticipated to be 7 years. MARR is 12%. This question is in five parts. The engineer next performs a sensitivity analysis for a best case and worst case scenario: Best Case Worst Case Initial Cost $95,000 $110,000 Labor Savings $25,000 $15,000 Scrap Cost Reduction $6,000 $4,00O Part 4: What is the present worth (PW) in the worst case scenario? (your answer should be a positive or negative number and do not use commas or $ signs)
The Chief Operations Officer (COO) of a manufacturing firm recommends one of the manufacturing sites to undergo a process improvement initiative. He claims that this project will enable the company to realize a net savings of at least $3.25 Mln. The Chief Financial Officer (CFO) of the company tasked you to conduct a financial analysis to verify the claims of the COO. After performing cost analysis, you estimated that the project will require an initial investment of $2 Mln today and $1 Mln in Year 1. Afterwards, the initiative will yield an annual cost savings of $850k from Year 2 to Year 10. You assume that these cost savings are realized at the end of each year. (a) Suppose that you use a discount rate of 5%. Will the resulting net savings support the claim of the COO? (b) Determine the Internal Rate of Return (IRR) of the process improvement initiative. (c) Show the NPV profile of the project.
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Polaris Industries wishes to purchase a multiple-use in-plan ”road test” simulator that can be used for ATVs, motorcycles, and snowmobiles. It takes digital data from relatively short drives on a desired surface - from smooth to exceptionally harsh - and simulates the ride over and over while the vehicle is mounted to a test stand under load. It can run continuously if desired and provides opportunities to redesign in areas of poor reliability. It costs $128,000 and its market value decreases 30% each year. Operating costs are modest; however, maintenance costs can be significant due to the rugged use. O&M in the first year is expected to be 10,000, increasing 25% each subsequent year. MARR is 15%. What is the optimum replacement interval? Show screen shots of any formulas used in Excel.
The Aubey Coffee Company is evaluating the within-plant distribution system for its new roasting, grinding, and packing plant. The two alternatives are (1) a conveyor system with a high initial cost but low annual operating costs and (2) several forklift trucks, which cost less but have considerably higher operating costs. The decision to construct the plant has already been made, and the choice here will have no effect on the overall revenues of the project. The cost of capital for the plant is 12%, and the projects' expected net costs are listed in the following table: a. What is the IRR of each alternative? The IRR of alternative 1 is -Select- Year 0 1 2 3 4 5 -Select- Expected Net Cost Forklift -$200,000 -160,000 -160,000 -160,000 -160,000 -160,000 Conveyor -$500,000 -120,000 -120,000 -120,000 -120,000 -20,000 The IRR of alternative 2 is-Select- b. What is the present value of costs of each alternative? Do not round Intermediate calculations. Round your answers to the nearest…
A pipeline engineer working in Kuwait for the oil giant BP wants to perform a present worth analysis on alternative pipeline routings—the first predominately by land and the second primarily undersea. The undersea route is more expensive initially due to extra corrosion protection and installation costs, but cheaper security and maintenance reduces annual costs. Use Present Worth Analysis with a MARR = 10% to determine which route should be selected.
During 2020, Pitt Corporation incurred costs to develop and produce a routine, low- risk computer software product as follows:Completion of detailed program design 130,000Costs incurred for coding & testing to establish technological feasibility 100,000 Other coding costs after establishment of technological feasibility 240,000Other testing costs after establishment of technological feasibility 200,000Cost of producing product masters for training materials 150,000Duplication of computer software and training materials from productmasters (1,000 units) 250,000Packaging…
Please help me
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
Whitehaven Group Ltd (WHG) is an industrial machinery manufacturing company based in Sydney. Due to increased demand for the company’s products the CEO of WHG, Mr John Johnson, is looking at upgrading the company’s production facilities at Chullora. As the member of the finance department at WHG you have been assigned the task of assessing the acceptability of the new project. • To assist you in this task the finance team have prepared the following information relating to the proposed project:• Implementation of the new project would require an immediate outlay of $10,000,000 on new machinery. This machinery is depreciable for tax purposes.• Additionally, WHG would need to undertake an immediate upgrade of the warehouse used for the project. This upgrade would cost $2,500,000 and is not considered depreciable for tax purposes.• The project is expected to have an operational life of four years.• The project is expected to generate EBDIT (in nominal values) of $5,000,000 in the first…
Citco Company is considering investing up to $512,000 in a sustainability-enhancing project. Its managers have narrowed their choices to three potential projects. • Project A would redesign the production process to recycle raw materials waste back into the production cycle, saving on direct materials costs and reducing the amount of waste sent to the landfill. Project B would remodel an office building, utilizing solar panels and natural materials to create a more energy-efficient and healthy work environment. Project C would build a new training facility in an underserved community, providing jobs and economic security for the local community. Required: 1. Assuming the cost of capital is 12%, complete the table below by computing the payback period, NPV, profitability index, and internal rate of return. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) 2. Based strictly on the economic analysis, in which project should they invest?…
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