B2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment isexpected to cost $382,400 with a 8-year life and no salvage value. It will be depreciated on a straight-line basis. The company expectsto sell 152,960 units of the equipment's product each year. The expected annual income related to this equipment follows.Sales239,000CostsMaterials, labor, and overhead (except depreciation on new equipment)Depreciation on new equipmentSelling and administrative expensesTotal costs and expenses84,00047,80023,900155,700Pretax income83,30024,990Income taxes (30%)Net income58,310If at least an 8% return on this investment must be earned, compute the net present value of this investment. (PV of $1, FV of $1, PVA of$1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)Chart Values are Based on:n =PV FactorSelect ChartAmountPresent ValueX106,110Present Value of an Annuity of 10Present value of cash inflowsPresent value of cash outflowsNet present value

Answered: B2B Co. is considering the purchase of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Granfield Company has a piece of manufacturing equipment with a book value of $48,500 and a remaining useful life of four years. At the end of the four years the equipment will have a zero-salvage value. Granfield can purchase new equipment for $171,000 and receive $28,800 in return for trading in its current equipment. The current equipment has variable manufacturing costs of $56,000 per year. The new equipment will reduce variable manufacturing costs by $27,500 per year over its four-year life. The total increase or decrease in income by replacing the current equipment with the new equipment is: Multiple Choice $32,200 increase $110,000 increase $16,300 decrease $74,950 increase $32,200 decrease
Thurston Petroleum is considering a new project that complements its existing business. The machine required for the project costs $4.35 million. The marketing department predicts that sales related to the project will be $2.45 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated to zero over its 4-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 25 percent of sales. The company also needs to add net working capital of $175,000 immediately. The additional net working capital will be recovered in full at the end of the project’s life. The tax rate is 25 percent and the required return for the project is 10 percent. What is the value of the NPV for this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)
Medavoy Company is considering a new project that complements its existing business. The machine required for the project costs $4.5 million. The marketing department predicts that sales related to the project will be $2.67 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated to zero over its 4-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 30 percent of sales. The company also needs to add net working capital of $190,000 immediately. The additional net working capital will be recovered in full at the end of the project’s life. The corporate tax rate is 23 percent and the required return for the project is 13 percent. What is the value of the NPV for this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)
A company is planning to purchase a machine that will cost $39,552, have a six-year life, and will have no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the payback period for this machine? $ 144,000 Sales Costs: Manufacturing Depreciation on machine Selling and administrative expenses Income Multiple Choice 6.18 years. 12 36 veare $ 86,400 4,000 48,000 (138,400) $ 5,600
Your company is considering the purchase of a new 623K Wheel Tractor-Scraper. Use the following information to calculate the hourly owning costs, hourly operating costs, and total owning and operating costs. - Delivered price (with tires): $420,000 - Cost of Tires: $30,000 and their life is determined by the average operation in zone B. - Salvage value is zero - the equipment is new and it is anticipated to be used for 5 years, until end of its service life. - Anticipated operating hours per year: 2,000 hrs/yr - Simple interest rate for purchase loan: 12% - Annual cost of Insurance: $5,500 (See optional method) - Property tax rate: 2% - Fuel use will be average value in medium range - Cost of fuel: $3.10 per gallon - Hourly Maintenance Cost: $5.00 per hour - Repair cost: $11.00 per hour - Operator cost (with fringes): $75 per hour - No undercarriage or special wear items costs…
A division of Virginia City Highlands Manufacturing is considering purchasing for $1,500,000 a machine that automates the process of inserting electronic components onto computer motherboards. The annual cost of operating the machine will be $50,000, but it will save the company $370,000 in labor costs each year. The machine will have a useful life of 10 years, and its salvage value in 10 years is estimated to be $300,000. Straight-line depreciation will be used in calculating taxes for this project, and the marginal corporate tax rate is 32 percent. If the appropriate discount rate is 12 percent, what is the NPV of this project?
Beacon Company is considering automating its production facility. The initial investment in automation would be $9.23 million, and the equipment has a useful life of 8 years with a residual value of $1,070,000. The company will use straight-line depreciation. Beacon could expect a production increase of 40,000 units per year and a reduction of 20 percent in the labor cost per unit. Production and sales volume Current (no automation) 80,000 units Proposed (automation) 120,000 units Per Unit Total Per Unit Total Sales revenue $ 91 $ ? $ 91 $ ? Variable costs Direct materials $ 17 $ 17 Direct labor 30? Variable manufacturing overhead 9 9 Total variable manufacturing costs 56? Contribution margin $ 35 ? $ 41 ? Fixed manufacturing costs 1,140,000 2,260,000 Net operating income ? ? Required: 3. Determine the project's payback period.
Salsa Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price $300,000 $600,000 Accumulated Depreciation 89,300 Remaining useful life 10 years Useful life 10 years Annual operating costs $240,000 $180,600 If the old machine is replaced, it can be sold for $24,000. How much is the sunk cost?
BSU Inc. wants to purchase a new machine for $29,300, excluding $1,500 of installation costs. The old machine was bought five years ago and had an expected economic life of 10 years without salvage value. This old machine now has a book value of $2,000, and BSU Inc. expects to sell it for that amount. The new machine would decrease operating costs by $7,000 each year of its economic life. The straight-line depreciation method would be used for the new machine, for a six-year period with no salvage value. Click here to view the factor table. (a) Determine the cash payback period. (Round cash payback period to 2 decimal places, e.g. 10.53.) Cash payback period (b) Determine the approximate internal rate of return. (Round answer to O decimal places, e.g. 13%. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Internal rate of return (c) years The investment Assuming the company has a required rate of return of 10%, determine whether the new machine…
Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $491,000 cost with an expected four-year life and a $20,000 salvage value Additional annual information for this new product line follows PV of $. EX of St. PVA of Stand EVA of $ (Use appropriate factors) from the tables provided) Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation Machinery 1. Determine income and net cash flow for each year of this machine's life. 2. Compute this machine's payback period, assuming that cash flows occur evenly throughout each year 3. Compute net present value for this machine using a discount rate of 7% Complete this question by entering your answers in the tabs below. Required 1 Required 2 year 4 Required 3 Compute net present value for this machine using a discount rate of 7%. (Do not round intermediate calculations. Negative amounts should be entered with a minus sign.…
Pique Corporation plans to purchase a new machine for $300,000. Management estimates that with the machine cash flows from sales will increase by $160,000 each year for the next 5 years. Expenses to generate the additional sales include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $70,000 per year. The firm uses straight-line depreciation with no terminal disposal value for all depreciable assets. The new machine has an expected salvage value of zero at the end of the project. Pique's combined income tax rate is 20%. Management requires a minimum after-tax rate of return of 8% on all investments.a. Calculate the Net Present Value (NPV) for this project.
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 for the next 10 years. After 15 years, the PDX will be scrapped (salvage value is zero). In contrast, the PDW can be acquired for $123,250 and 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 all cash 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 prefer Equivalent Annual NPV Approach: Equivalent Annual NPV of PDX341 $ Equivalent Annual NPV of PDW581 $ We would prefer

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