Riverbed, a large manufacturing company, currently uses a large printing press in its operations and is considering two replacements:the PDX341 and PDW581. The PDX costs $493,000 and has annual maintenance costs of $9,300 for the first 5 years and $14,300 forthe next 10 years. After 15 years, the PDX will be scrapped (salvage value is zero). In contrast, the PDW can be acquired for $123,250and requires maintenance of $28,600 a year for its 10-year life. The salvage value of the PDW is expected to be zero in 10 years.Assuming that Riverbed must replace its current printing press (it has stopped functioning), has a(n) 10-percent cost of capital, and allcash flows are after tax, which replacement press is the most appropriate? (Round answers to 2 decimal places, e.g. 125.25.)Chain Replication Approach:NPV of PDX341$NPV of PDW581$We would preferEquivalent Annual NPV Approach:Equivalent Annual NPV of PDX341$Equivalent Annual NPV of PDW581$We would prefer

The net present value is a financial tool used to determine if investing now will pay off later. It…

Answered: Assuming that Riverbed must replace its…

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

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TransITRI is a transportation company with a recent need of a new construction equipment at a first cost of $78,000 (Equation (1)), zero salvage value, and a cash flow before taxes (CFBT) per year t that follows Equation (2). CFBT = $30,000 – 3,000t (for t = 1, 2, … T) (1) CFBT = - $78,000 (for t =0) (2) Calculate the PW if the economic life of similar machinery is 9 years, while the MARR is 16%
TransITRI is a transportation company with a recent need of a new construction equipment at a first cost of $78,000 (Equation (1)), zero salvage value, and a cash flow before taxes (CFBT) per year t that follows Equation (2). CFBT = $30,000 – 3,000t (for t = 1, 2, … T) (1) CFBT = - $78,000 (for t =0) (2) Calculate the PW if the economic life of similar machinery is 7 years, while the MARR is 16%
TransITRI is a transportation company with a recent need of a new construction equipment at a first cost of $78,000 (Equation (1)), zero salvage value, and a cash flow before taxes (CFBT) per year t that follows Equation (2). CFBT = $30,000 – 3,000t (for t = 1, 2, … T) (1) CFBT = - $78,000 (for t =0) (2) Calculate the PW if the economic life of similar machinery is 8 years, while the MARR is 12%
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17.
Assume that you calculated the ATER after year 3 as $275,000, the after-tax cash flow in year 4 was $6,800 and grew by 3% until year 8, and the ATER in year 8 was $300,000. Use this information to calculate the incremental IRR for not selling the property and collecting rents for years 4-8. What is the incremental IRR for not selling the property? A. 2.88% B. 4.29% C.-41.90% D. 6.40%
A Company is considering a proposal of installing a drying equipment. The equipment would involve a Cash outlay of 6,00,000 and net Working Capital of 80,000. The expected life of the project is 5 years without any salvage value. Assume that the company is allowed to charge depreciation on straight-line basis for Income-tax purpose. The estimated before-tax cash inflows are given below: Year Before-tax Cash inflows ('000) 1 2 3 4 5 240 275 210 180 160 The applicable Income-tax rate to the Company is 35%. If the Company's opportunity Cost of Capital is 12%, calculate the equipment's discounted payback period, payback period, net present value and internal rate of return. The PV factors at 12%, 14% and 15% are: Year 1 2 3 4 5 PV factor at 12% 0.8929 0.7972 0.7118 0.6355 0.5674 PV factor at 14% 0.8772 0.7695 0.6750 0.5921 0.5194 PV factor at 15% 0.8696 0.7561 0.6575 0.5718 0.4972 10-22
Am120.
National Integrated Systems (NIS), a global provider of heating and air conditioning is planning a project whose data is provided below. The project’s equipment has a 3 year tax life after which its salvage value will be zero. The machinery will be depreciated on a straight line basis over three years. Revenues and other operating costs are expected to be constant over the project’s life. What is the project’s cash flow in Year 1? Equipment Cost = $130,000Depreciation rate = 33.33%Annual Sales Revenue= $120,000Operating Costs (ex Depreciation) = $50,000 Tax Rate = 35%
b. What effect would a $10.2 million capital expense have on this year's earnings if the capital is depreciated at a rate of $2.04 million per year for five years? What effect would it have on next year's earnings? (Select all the choices that apply.) A. Capital expenses do not affect earnings directly. However, the depreciation of $2.04 million would appear each year as a capital expense. B. Capital expenses do not affect earnings directly. However, the depreciation of $2.04 million would appear each year as an operating expense. C. With a reduction in taxes of 25% × $2.04 million = $0.51 million, earnings would be lower by $2.04 million - $0.51 million = $1.53 million for each of the next 5 years. D. With an increase in taxes of 25% × $2.04 million = $0.51 million, earnings would be higher by $2.04 million - $0.51 million = $1.53 million for each of the next 5 years.

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Assuming that Riverbed must replace its current printing press (it has stopped functioning), has a(n) 10-percent cost of capital, and al cash flows are after tax, which replacement press is the most appropriate? (Round answers to 2 decimal places, e.g. 125.25.)