Benson Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual basis during its first two years of operation. Thereafter, It would be leased to the general public on demand. Benson would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow: Year Year 1 Year 1 Year 2 Year 3 Year 3 Year 4 Year 5 Year 5 Nature of Item Purchase price Revenue Revenue Revenue Major overhaul Revenue Revenue Salvage value Cash Inflow $31,500 31,500 26,500 17,500 15, see 7,100 Cash Outflow $81,200 a. Payback period (accumulated cash flows) b. Payback period (average cash flows) Required a.&b. Determine the payback period using the accumulated and average cash flows approaches. Note: Round your answers to 1 decimal place. 8,300 years years

Benson Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual basis during its first two years of operation. Thereafter, It would be leased to the general public on demand. Benson would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow: Year Year 1 Year 1 Year 2 Year 3 Year 3 Year 4 Year 5 Year 5 Nature of Item Purchase price Revenue Revenue Revenue Major overhaul Revenue Revenue Salvage value Cash Inflow $31,500 31,500 26,500 17,500 15, see 7,100 Cash Outflow $81,200 a. Payback period (accumulated cash flows) b. Payback period (average cash flows) Required a.&b. Determine the payback period using the accumulated and average cash flows approaches. Note: Round your answers to 1 decimal place. 8,300 years years

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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Read and analyze the problems carefully, and present complete cash flow diagrams as necessary and solutions.
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The West Mount Trading deposited yearly an amount of $5000 for 15 years. The accumulated amount was used to cover an emergency repair costing $100,000 in year 15. Draw the cash flow diagram. Calculate the rate of return of that this investment provided to the West Mount Trading.
costing $150,000. Grover intends to keep the truck for five years before Grover Contracting, Inc., is considering the purchase of a new cement truck trading it in on a new one. The truck's estimated salvage value at the end of he five-year period is approximately $25,000. The truck is expected to increase annual income and cash flows by the following amounts: Year Increase in Net Cash Flows 2$ Increase in Income 2$ 37,500 37,500 37,500 37,500 1 10,000 12,000 14,000 3 4 16,000 5 18,000 37,500 $70,000 $187,500 Required: a. Compute the payback period associated with this investment. b. Compute the return on average investment of this proposal. Compute the net present value of this investment if Grover requires a minimum return of с. 12%. d. Comment on your findings.
Solomon Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual basis during its first two years of operation. Thereafter, it would be leased to the general public on demand. Solomon would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow: Year Year 1 Year 1 Year 2 Year 3 Year 3 Year 4 Year 5 Year 5 Nature of Item Purchase price Revenue Revenue Revenue Major overhaul Revenue Revenue Salvage value Cash Inflow $37,000 37,000 26,000 23,000 21,000 8,200 Cash Outflow $90,600 a. Payback period (accumulated cash flows) b. Payback period (average cash flows) 9,400 Required a.&b. Determine the payback period using the accumulated and average cash flows approaches. Note: Round your answers to 1 decimal place. years years
Initial cash flow: Basic calculation Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 4 years ago at an installed cost of $20,700; it was being depreciated under MACRS using a 5-year recovery period. (See table for the applicable depreciation percentages.) The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $35,900 and requires $5,500 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can currently be sold for $25,700 without incurring any removal or cleanup costs. The firm is subject to a 21% tax rate. Calculate the initial cash flow associated with the proposed purchase of a new grading machine. The initial cash flow will be $ (Round to the nearest dollar.) Data table covery year 1 HY68L24557 10 11 Totals ... 3 years 33% 45% 15% 7% 100% Percentage by recovery year* 5 years 20% 32% 19% 12%…
You may attempt this question 2 more times for credit. A firm has invested $700 in a new machine that is expected to last for the next 4 years. The machine will be depreciated on a straight line basis down to zero by the end of its 4 year life. The firm projects that the machine will generate consecutive annual cash inflows of $700 beginning in one year and will generate consecutive annual cash outflows at 290 also beginning in one year.. Assuming the tax rate of 33%, determine the firm's cash flow next year. Place your answer to dollars and cents. Do not include a dollar sign or a comma in your answer.
Subject : Accounting
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 $480,000 cost with an expected four-year life and a $20,000 salvage value. Additional annual information for this new product line follows. Required 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%.
Bob Jensen Inc. purchased a $580,000 machine to manufacture specialty taps for electrical equipment. Jensen expects to sell all it can manufacture in the next 10 years. The machine is expected to have a 10-year useful life with no salvage value. Jensen uses straight-line depreciation. Jensen uses a 10% discount rate in evaluating capital investments, the investment is subject to taxes, and the projected pretax operating cash inflows are as follows: Year Pretax Cash Inflow 1 $ 58,000 2 71,000 3 107,000 4 178,000 5 214,000 6 268,000 7 241,000 8 214,000 9 107,000 10 71,000 Jensen has been paying 25% for combined federal, state, and local income taxes, a rate that is not expected to change during the period of this investment. The firm uses straight-line depreciation. Assume, for simplicity, that MACRS depreciation rules do not apply. Required: Using Excel, compute the following for…
Gold Inc. sold the rights to use one of its patented processes that will result in cash receipts of $2,500 at the end of each of the next four years and a lump sum receipt of $4,000 at the end of the fifth year. The total present value of these payments if interest is at 9% is: Choose the closest answer. A) $14,000. B) $11,468. C) $12,100. D) $10,699. PVA 9% 4 pds 3.23972, PVA 9% 5 pds 4,58720 PV 1 9% 4 pds .72451 . PV 1 % 5 pds .64993
For each of the following problems, (a) draw the cash flow diagram; (b) present clean and clear manual solutions to the problem; (c) highlight the final answer (only the final answer as required by the problem) by enclosing it within a box. Company E recently acquired an asset that has a cost basis of $9,000. The asset’s estimated life is 10 years, after which it will be sold for $1,000. Find the book value at the end of the third year if the sum-of-years digits depreciation is used.

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