Average Rate of Return-Cost SavingsMidwest Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $108,000 with a$9,000 residual value and a ten-year life. The equipment will replace one employee who has an average wage of $27,435 per year. In addition,the equipment will have operating and energy costs of $5,250 per year.Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment. If required, round to thenearest whole percent.%

Computation of annual depreciation:

Answered: Average Rate of Return-Cost Savings…

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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who has an average wage of $48,890 per year. In addition, the equipment will have operating and energy costs of $12, 190 per year. Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment. If required, round to the nearest whole percent. % Maui Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $126,000 with a $11,000 residual value and a 5-year life. The equipment will replace one employee who has an average wage of $48,890 per year. In addition, the equipment will have operating and energy costs of $12,190 per year. Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment. If required, round to the nearest whole percent. %
Rakesh
You have been asked to determine the most financially advantageous option for a new Product Packaging machine. It has been determined by the Marketing Department that product packaging actually makes a difference in the anticipated Yearly Revenue generated by this product and have been provided below. The director now wants an annual worth analysis performed on the two final designs based on a shortened project life of only 9 years. Compare the alternatives at the MARR of 10% per year. (all dollar values are in thousands) Packaging Packaging Machine Design Machine Design A B First Cost, $ -900 -1,500 AOC, $ per year -200 -300 Salvage value, $ (after 7 years of use) 200 Salvage value, $ (after 3 years of use) 100 Salvage value, $ (after 2 years of use) 20 50 Annual revenue, $ per year 800 900 Life, years 3 7 AW ($K per year) for one full life 268.312 312.967 cycle AW for a particle life of 2 years ($K 90.953 -240.476 per year) Assuming that the AW values for Designs A and B provided in…
Problem 1: You are considering the purchase of one of two machines used in your manufacturing plant. Machine A has a life of two years, costs $80 initially, and then $125 per year in maintenance costs. Machine B costs $150 initially, has a life of three years, and requires $100 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine. Which is the better machine for the firm? The discount rate is 12 percent, and the tax rate is zero.
A new process for a manufacturing process will have a first cost of $45,000 with annual costs of $38,000. Extra income associated with the new process is expected to be $62,000 per year. What is the discounted payback period at i = 12% per year? 2.84 3.23 2.25 4.52
Average Rate of Return—Cost Savings Midwest Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $92,000 with a $8,000 residual value and a ten-year life. The equipment will replace one employee who has an average wage of $22,850 per year. In addition, the equipment will have operating and energy costs of $4,450 per year. Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment. If required, round to the nearest whole percent. %
You are evaluating a product for your company. You estimate the sales price of product to be $150 per unit and sales volume to be 10,500 units in year 1; 25,500 units in year 2; and 5,500 units in year 3. The project has a 3 year life. Variable costs amount to $75 per unit and fixed costs are $205,000 per year. The project requires an initial investment of $339,000 in assets which will be depreciated straight-line to zero over the 3 year project life. The actual market value of these assets at the end of year 3 is expected to be $45,000. NWC requirements at the beginning of each year will be approximately 15% of the projected sales during the coming year. The tax rate is 21% and the required return on the project is 12%. What will the year 2 free cash flow for this project be?
Scenario: The production department is intending on acquiring a more energy-efficient machine. The production manager has asked for your help with evaluating two alternative machine models. Model 1: Requires initial investment of $80,000. The expected cash inflow for the first year is $26,000 and this is expected to grow at 2% per annum. Model 2: Requires initial investment of $120,000. The expected cash inflow for the first year is $38,000 and this is expected to grow at 2.5% per annum. The expected useful life of both machines are six years. The business requires a rate of return of 10%. Create a new Excel workbook and complete the requirements below on one sheet. Present everything in a tidy and formatted manner. Requirements: Set up columns A and B for the input data and input relevant information from the scenario above. Calculate the following for Model 1 and Model 2 using cell references and functions (i.e., no hard coding): a. Projected future cash flows b. Net present value…
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Assume that a company is considering purchasing a machine for $100,000 that will have a seven-year useful life and a $16,500 salvage value. The machine will lower operating costs by $18,000 per year and increase sales volume by 1,000 units per year. The company earns a contribution margin of $3.00 per unit. The company also expects this investment to provide qualitative benefits that it is struggling to incorporate into its financial analysis. Assuming the company’s required rate of return is 17%, the minimum dollar value per year that must be provided by the machine’s qualitative benefits to justify the $100,000 investment is closest to: Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using the tables provided.
Average rate of return—new product Oahu Inc. is considering an investment in new equipment that will be used to manufacture a smartphone. The phone is expected to generate additional annual sales of 6,600 units at $270 per unit. The equipment has a cost of $675,200, residual value of $50,800, and an 8-year life. The equipment can only be used to manufacture the phone. The cost to manufacture the phone follows: Line Item Description Amount Cost per unit: Direct labor $45.00 Direct materials 174.00 Factory overhead (including depreciation) 29.55 Total cost per unit $248.55 Determine the average rate of return on the equipment. If required, round to the nearest whole percent.
Average Rate of Return—Cost Savings Maui Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $140,000 with a $12,000 residual value and a ten-year life. The equipment will replace one employee who has an average wage of $29,460 per year. In addition, the equipment will have operating and energy costs of $6,780 per year. Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment. If required, round to the nearest whole percent.fill in the blank 1 %

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