Bernard Productions, a motion picture producer, is considering the purchaseof a new movie camera. The new camera will cost P30,000, have an eight-year life, and create cost savings of P5,000 per year. However, the newcamera will require P700 of maintenance each year. The company uses adiscount rate of 9 percent.Required:а.)Compute the net present value of the new camera.Determine the payback period.b.)

Calculation of cash outflows on new camera = Purchase price = - P 30000

Answered: Bernard Productions, a motion picture…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 17EA: Gardner Denver Company is considering the purchase of a new piece of factory equipment that will...

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Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required: 1. Patz Corporation is considering the purchase of a computer-aided manufacturing system. The cash benefits will be 800,000 per year. The system costs 4,000,000 and will last eight years. Compute the NPV assuming a discount rate of 10 percent. Should the company buy the new system? 2. Sterling Wetzel has just invested 270,000 in a restaurant specializing in German food. He expects to receive 43,470 per year for the next eight years. His cost of capital is 5.5 percent. Compute the internal rate of return. Did Sterling make a good decision?
Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $420,000 and will generate $95,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further Instructions on internal rate of return in Excel, see Appendix C.
A company is considering buying a piece of machinery that costs $20,000 and has a salvage value of $6,000 at the end of its 5-year useful life. The machinery nets $5,000 per year in annual revenues. The internal rate of return (IRR) on this investment is between__________. if the company considering purchasing the machine uses a MARR of 12%, would you recommend that it be bought?
Kunkel Company is considering the purchase of a $23,000 machine that would reduce operating costs by $5,000 per year. At the end of the machine's five-year useful life, it will have zero salvage value. The company's required rate of return is 12%. Click here to view Exhibit 14B-1 and Exhibit 14B-2. to determine the appropriate discount factor(s) using table. Required: 1. Calculate the net present value of the investment in the machine 2. What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Calculate the net present value of the investment in the machine. Note: Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar amount. Use the appropriate table to determine the discount factor(s). Net present value
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Please help me
Blossom Manufacturing is considering the purchase of a new sewing machine that costs $23200. The machine, because of its efficiency, will save about $4960 in cost each year. The machine is expected to have a salvage value of $3720 and a life of 6 years. Blossom's required rate of return is 12%. Click here to view the factor table. Using the present value tables, what is the machine's net present value? (round to the nearest dollar) O $18600 $-3402 O $-922 O $29760
The management of Kunkel Company is considering the purchase of a $40,000 machine that would reduce operating costs by S9, 500 per year. At the end of the machine's five-year useful life, it will have zero salvage value. The company's required rate of return is 13%. Click here to view Exhibit 148-1 and Exhibit 148 -2, to determine the appropriate discount factor(s) using table. Required: 1. Determine the net present value of the investment in the machine. 2. What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine?
CCAManufacturing is considering replacing a broken metal cutting machine. Several options have been proposed. Option 1: The broken machine can be sold today for P 15,000 Option 2: It can be overhauled completely for P20000 after which it will produce P8000in annual cashflow over the next 5 years. The resale value of the asset at the end of 5years is 3,000 Option 3: It can be replaced for P 35,000. The life of the replacement Machine is 5 years and an estimated salvage value of of P15,000 At the end of 5 years. Anticipated operating cash inflows for each year will be P12,000. If firm's requirement rate is 12%, which option is most viable? Factor Table - i = 12.00% P/F P/A P/G F/P F/A A/P A/F A/G 0.8929 0.8929 0.000 L.1200 1.0000 1.1200 1.000 0.000 2 0.7972 1.6901 0.7972 1.2544 2.1200 0.5917 0.4717 0.4717 2.4018 3.0373 3 0.7118 2.208 1.4049 3.3744 0.4163 0.2963 0.9246 4 0.6355 4.1273 1.5735 4.7793 0.3292 0.2092 1.389 5 0.5674 3.6048 6.3970 1.7623 6.3528 0.2774 0.1574 1.7746 Option 1 PV=…

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