b) Your company has asked you to analyze the purchase of a new machine. The machine will cost $1000,000 and have an operating and maintenance cost that starts at $40,000 the first year and increases by $10,000 each year. Assume the salvage value at the end of 10 years is $20,000 and the interest rate is 18% per year. What is the required annual revenue for this project to break even?

b) Your company has asked you to analyze the purchase of a new machine. The machine will cost $1000,000 and have an operating and maintenance cost that starts at $40,000 the first year and increases by $10,000 each year. Assume the salvage value at the end of 10 years is $20,000 and the interest rate is 18% per year. What is the required annual revenue for this project to break even?

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

See similar textbooks

Similar questions

Consider a machine that costs P20,000 and has a five years useful life. At the end of the five years, it can be sold for P4,000 after tax adjustment. The annual operating and maintenance (O&M) costs are about P500. If the firm could earn an after-tax revenue of P5,000 per year with this machine, should it be purchased at an interest rate of 10%?
The initial cost of a new machine is $10,000. The annual operating cost is $1,000/yr for first 3 years, and then becomes $3,000/yr after that. The machine needs a major repair at the end of 5th year, which costs $5,000. The machine has 10 years useful life with salvage value of $4,000. Calculate EUAC for keeping the machine for 10 years. (i=10%/yr)
A new die press machine costs $ 150,000, and lasts 8 years with salvage value of $20,000. Annual operating costs are $50,000. If you want to make a 10% return on investment, what is the minimum annual revenue required from this machine?
a company must buy new safety equipment every 8 years, costing $16,000, with a salvage value of $185O. A new type of equipment is coming on the market soon that will last 10 years and have a salvage value of 12% of the original cost. If money is worth 14.5% annually, compare the two possibilities and identify the highest price the company should pay for the new type of equipment.
Consider two competing projects, for which MARR = 12%: Initial Equivalent Investment, P Annuity, A $100000 $23000 $100000 $35000 Project Project A Project B Duration 9 years 4 years ROR i* % 17.7% 15% According to the RoR method, Project A is preferable. However, the company will be able to reinvest the future cash flows at rate 25%, compounded annually. Is Project A still preferable?
Michael Scott Paper, Inc. is considering a new machine that requires an initial investment of $650, 000, including installation costs, and has a useful life of ten years. The expected annual after - tax cash flows for the machine are $90, 000 during the first two years, $115.000 during years three through six, and $85, 000 during the remaining years of its useful life. What is the net present value (NPV) when the discount rate is 5% ?
Consider a machine that costs $1000 to purchase. The machine creates an annual operating expense of $500 at the end of first year, which is going to increase by $50 in each year thereafter. The salvage value of this machine is $200, independent of the usage period. Find the economic life of this machine under nominal MARR 25%, compounding annually. A 8. B. 6.
A company wants to purchase a piece of equipment that costs $18,000. In 8 years, that same piece of equipment is expected to have a salvage value of $5,000. The estimated annual maintenece cost is $1,000 in the first year, but is expected to increase by $300 each year thereafter. What is the present worth of the project, using a 10% interest rate.
Consider a machine purchased one year ago for $18,000. The machine is being depreciated $3,000 per year throughout a six-year period. Its current market value is $6,000, and the expected market value of the machine one year from now is $4,000. If the interest rate is 10%, the expected cost of holding the machine during the next year is $___.
a company is considering the purchase of a new machine for 480,000. Management predicts that the machine can produce sales of 180,000 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling 120,000 per year including depreciation of 30,000 per year. The company's tax rate is 40%. What is the payback period for the new machine?
New equipment costs $847,000 and is expected to last for five years with the salvage value of 10% of the equipment cost. During this time the company will use a 20% CCA rate. The new equipment will save $280,000 annually before taxes. If the company's required rate of return is 5.35%, determine the PVCCATS of the purchase. Assume a tax rate of 35%. Please show all the calculations by which you came up with the final answer.
A new project will cost $40,000 to fund today, and an additional $40,000 next year. The device built will generate revenues of $17,000 starting in year 2 which increases by 4% each year until the device is sold at the end of year 12. The device’s salvage value is $10,000. $2,000 of maintenance is required every year. What is the NPV of building this device, if the interest to borrow the funds is 15%? (Round to nearest dollar)

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS