Barron Chemical uses a thermoplastic polymer to enhance the appearance of certain RV panels. The initial cost of one process was $128,000 with annual costs of $48,000. Revenues are $76,000 in year 1, increasing by $1000 per year. A salvage value of $24,000 was realized when the process was discontinued after 8 years. What rate of return did the company make on the process? The rate of return made by the company is |%.

Barron Chemical uses a thermoplastic polymer to enhance the appearance of certain RV panels. The initial cost of one process was $128,000 with annual costs of $48,000. Revenues are $76,000 in year 1, increasing by $1000 per year. A salvage value of $24,000 was realized when the process was discontinued after 8 years. What rate of return did the company make on the process? The rate of return made by the company is |%.

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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You purchased an industrial oven five years ago for $80,000. O&M costs were $20,000 for this year but are expected to increase by $750 each year for the next five years. The current salvage value of the oven is $40,000 but expected to decrease by 10% in each of the following years of use (e.g. $36,000 after one year, $32,400 after two years, so on). At i = 10%, find the remaining economic life for this asset. A) 1 year B) 2 years C) 3 years D) Answers A, B and C are not correct
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am. 117.
One year ago, your company purchased a machine used in manufacturing for $105,000. You have learned that a new machine is available that offers many advantages and that you can purchase it for $150,000 today. The CCA rate applicable to both machines is 20%; neither machine will have any long-term salvage value. You expect that the new machine will produce earnings before interest, taxes, depreciation, and amortization (EBITDA) of $45,000 per year for the next 10 years. The current machine is expected to produce EBITDA of $22,000 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Your company's tax rate is 35%, and the opportunity cost of capital for this type of equipment is 10%. Should your company replace its year-old machine? What is the NPV of replacement? The NPV of replacement is $ (Round to the nearest dollar.) .....
One year ago, your company purchased a machine used in manufacturing for $120,000. You have learned that a new machine is available that offers many advantages and that you can purchase it for $160,000 today. The CCA rate applicable to both machines is 40%; neither machine will have any long-term salvage value. You expect that the new machine will produce earnings before interest, taxes, depreciation, and amortization (EBITDA) of $40,000 per year for the next ten years. The current machine is expected to produce EBITDA of $23,000 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Your company's tax rate is 45%, and the opportunity cost of capital for this type of equipment is 12%. Should your company replace its year-old machine? What is the NPV of replacement?
Trademill Co. is planning to replace its existing machinery with new and better technology ones with higher capacity. Old machinery bought 4 years ago, with a price of 900,000, life of 10 years, zero salvage value, and can be sold in the market for 280,000. New machinery has a total cost of 1,800,000, no salvage value and 6 years life. It is expected to increase sales by 1,200,000, CGS stays at its 40% level, and additional working capital of 380,000 required. Tax is 25%, discount rate 12%. Should the replacement be made? Use NPV for decision making. LETS SOLVE TOGETHER!
One year ago, your company purchased a machine used in manufacturing for $105,000. You have learned that a new machine is available that offers many advantages and that you can purchase it for $150,000 today. The CCA rate applicable to both machines is 40%; neither machine will have any long-term salvage value. You expect that the new machine will produce earnings before interest, taxes, depreciation, and amortization (EBITDA) of $40,000 per year for the next 10 years. The current machine is expected to produce EBITDA of $20,000 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Your company's tax rate is 40%, and the opportunity cost of capital for this type of equipment is 11%. Should your company replace its year-old machine? What is the NPV of replacement? The NPV of replacement is $ (Round to the nearest dollar.)

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