Bennett Company is considering thepurchase of a new machine. The newmachine has a 10-year life and a$8,720 salvage value. The newmachine is expected to generate netcash inflows of $64,000 each yearduring its life. The old machinecurrently in use can be sold for $17,520if the new machine is purchased. Theaccounting rate of return on the newmachine was determined to be 15%.Calculate the cost of the new machine.

The accounting rate of return, often known as ARR, is a project assessment approach that considers…

Bennett Company is considering the purchase of a new machine. The new machine has a 10-year life and a $8,720 salvage value. The new machine is expected to generate net cash inflows of $64,000 each year

Bennett Company is considering the purchase of a new machine. The new machine has a 10-year life and a $8,720 salvage value. The new machine is expected to generate net cash inflows of $64,000 each year

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Carson Trucking is considering whether to expand its regional service center in Mohab, UT. The expansion requires the expenditure of $11,000,000 on new service equipment and would generate annual net cash inflows from reduced costs of operations equal to $4,000,000 per year for each of the next 9 years. In year 9 the firm will also get back a cash flow equal to the salvage value of the equipment, which is valued at $1.1 million. Thus, in year 9 the investment cash inflow totals $5,100,000. Calculate the project's NPV using a discount rate of 7 percent. Question content area bottom Part 1 If the discount rate is 7 percent, then the project's NPV is $enter your response here.
A new diamond deposit has been found in northern Alberta. Your researchers have determined that it will cost $2.5 million to purchase the land and prepare it for mining. At the beginning of both the second and third years, another $1 million investment will be required to establish the mining operations. Starting at the end of the second year, the deposit is expected to earn net profits of $3 million, which will be sustained for three years before the deposit is depleted. If the cost of capital is 16%, should your company pursue this venture? Provide calculations to support your decision.
The Sip & Dip Donut company is considering the acquisition of a new automatic donut dropper for $600,000. The machine will have a six-year life and will produce before tax cash savings of $200,000 each year. The asset is to be depreciated using the straight-line method with no salvage value. The company's tax rate is 40 percent. What is the after-tax net cash inflow on the investment?
To open a new store, Finch Tire Company plans to invest $250,000 in equipment expected to have a five-year useful life and no salvage value. Finch expects the new store to generate annual cash revenues of $322,000 and to incur annual cash operating expenses of $187,000. Finch's average income tax rate is 35 percent. The company uses straight-line depreciation. Required Determine the expected annual net cash inflow from operations for each of the first four years after Finch opens the new store. Note: Negative amounts should be indicated by a minus sign. Year 1 Year 2 Year 3 Year 4 Net cash Inflow or Outflow
Follow the format shown in Exhibit 12B.1 and Exhibit 12B.2 as you complete the requirement below. Woodard Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of trenching machines. The outlay required is $700,000. The NC equipment will last five years with no expected salvage value. The expected after-tax cash flows associated with the project follow: Year Cash Revenues Cash Expenses 1 2 3 4 5 $1,400,000 1,400,000 1,400,000 1,400,000 1,400,000 $1,200,000 1,200,000 1,200,000 1,200,000 1,200,000 Required: Compute the investment's Net Present Value, assuming a required rate of return of 8 percent. Round present value calculations and your final answer to the nearest dollar. NPV = $ X
Foster Company wants to buy a special automated machine to replace an existing manual system. The initial outlay (cost) is $3,500,000. The new machine will last 5 years with no expected salvage value. The expected annual cash flows are as follows: Year Cash Inflow Cash Outflow 0 $ - $ 3,500,000.00 1 $ 3,900,000.00 $ 3,000,000.00 2 $ 3,900,000.00 $ 3,000,000.00 3 $ 3,900,000.00 $ 3,000,000.00 4 $ 3,900,000.00 $ 3,000,000.00 5 $ 3,900,000.00 $ 3,000,000.00 Foster has a cost of capital equal to 10%. 1. Calculate the payback period. Payback period: years
Pina Colada Manufacturing Company is considering three new projects, each requiring an equipment investment of $25,600. Each project will last for 3 years and produce the following cash flows. Year 1 2 3 AA BB $8,200 $11,100 $12,200 11,200 10,200 16,200 Total $34,600 (a) 11,100 11,100 Payback period $33,300 CC 10,200 The salvage value for each of the projects is zero. Pina Colada uses straight-line depreciation. Pina Colada will not accept any project with a payback period over 2.2 years, Pina Colada's minimum required rate of return is 12%. Click here to view PV tables. $33,600 Compute each project's payback period: (Round answers to 2 decimal places, e.g. 52.75.) AA years BB years CC years
To open a new store, Zachary Tire Company plans to invest $378,000 in equipment expected to have a seven-year useful life and no salvage value. Zachary expects the new store to generate annual cash revenues of $322,000 and to incur annual cash operating expenses of $192,000. Zachary's average income tax rate is 40 percent. The company uses straight-line depreciation. Required Determine the expected annual net cash inflow from operations for each of the first four years after Zachary opens the new store. Note: Negative amounts should be indicated by a minus sign. Year 1 Year 2 Year 3 Year 4 Net cash Inflow or Outflow
Your company is considering taking on a new project that will cost $200,000. It is estimated that the system will increase sales/revenues by $150,000 annually for Years 1-6. Operating expenses, other than depreciation, are expected to be equal to 60 percent of sales in each year. The system will be depreciated on a MACRS basis over 5 years (depreciation rates are 20%, 32%, 19%, 12% 11%, and 6%) to a zero book value, but the expected salvage at Year 6 is $40,000. The firm will also be required to invest $25,000 in net working capital at Year 0, but will recapture this amount at Year 6. You may assume that the tax rate on ordinary income is 40 percent (record negative taxes as a positive cash flow). As you can calculate, the IRR for this project is 13.02%. If we assume that the firm's cost of capital for this project is 11 percent, then what is the NPV for this project? $29,055.63 O $37.201.15 $6,874.69 $21,301.58 O $13,915.29
please see image
The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given below. The company's cost of capital is 8%. Year 0 1 2 3 4 5 Annual Operating Cash Flow Salvage Value -$22,500 6,250 6,250 6,250 6,250 6,250 a. What is the optimal number of years to operate the truck? Do not round intermediate calculations. Round your answers to the nearest whole number. years -Select- ✓ b. Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project? I. No. Salvage possibilities could only raise NPV and IRR. II. Yes. Salvage possibilities could only lower NPV and IRR. III. Salvage possibilities would have no effect on NPV and IRR. $22,500 17,500 14,000 11,000 5,000 0
Prescott Corporation is considering an investment in new equipment costing $912,000. The equipment will be depreciated on a straight-line basis over a ten-year life and is expected to have a residual value of $92,000. The equipment is expected to generate net cash inflows of $140,000 for each of the first five years and $100,000 for each of the last five years. What is the accounting rate of return associated with the equipment investment? (Round your answer to two decimal places.) OA. 8.59% OB. 8.66% OC. 8.99% OD. 7.57% C