Blossom T Corporation is comparing two different options. Blossom T currently uses Option 1, with revenues of $78,000 per year,maintenance expenses of $6,000 per year, and operating expenses of $31,200 per year. Option 2 provides revenues of $72,000 peryear, maintenance expenses of $6,000 per year, and operating expenses of $26,400 per year. Option 1 employs a piece of equipmentwhich was upgraded 2 years ago at a cost of $20,000. If Option 2 is chosen, it will free up resources that will bring in an additional$5,000 of revenue. Complete the following table to show the change in income from choosing Option 2 versus Option 1. DesignateSunk costs with an "S" otherwise select "NA". (Enter negative amounts using either a negative sign preceding the number e.g. -45 orparentheses e.g. (45).)

Answered: Blossom T Corporation is comparing two…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 14P

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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?
Nathan T Corporation is comparing two different options. Nathan T currently uses Option 1, with revenues of $65,000 per year, maintenance expenses of $5,000 per year, and operating expenses of $26,000 per year. Option 2 provides revenues of $60,000 per year, maintenance expenses of $5,000 per year, and operating expenses of $22,000 per year. Option 1 employs a piece of equipment which was upgraded 2 years ago at a cost of $17,000. If Option 2 is chosen, it will free up resources that will bring in an additional $4,000 of revenue. Complete the following table to show the change in income from choosing Option 2 versus Option 1. Designate Sunk costs with an “S.”
Moonshine Corporation is considering purchasing one of two machines. Machine A has a useful life of 8 years and costs $185,000. The machine A's annual maintenance costs are $2,000. Machine B has a useful life of 12 years and costs $215,000. The machine B's annual maintenance costs are $2,500. Given a rate of 7% , calculate each machine's EAC. Machine A EAC - $25,570; machine B EAC = $29,569. Machine A EAC - $26,570; machine B EAC - $30,569. Machine A EAC - $23,570; machinc BEAC - $27,569. Machine A EAC = $22,570; machine B EAC - $26,569. Machine A EAC = $24,570; machine B EAC - $28,569.
Trailer Treasures Inc. is considering two projects and must do one of them. Project A requires an investment of $35,000. Estimated annual receipts for 5 years are $14,000; estimated annual costs are $4,500. Alternatively, Project B requires an investment of $70,000 has annual receipts for 5 years of $20,000, and has annual costs of $4,500. Assume both proejcts have $10,000 salvage value and that MARR IS 15%/year. 1. What is the annual worth of Project A? 2. What is the annual worth of Project B? 3. Which project should be recommended? Why? Please show work through excel
Company A is considering two alternatives. Machine A has a first cost of $15,000. The life is 6 years and it has an annual maintenance and operating cost of $1,500. Machine B has a first cost of $18,000, a life of 8 years and a salvage value of $1,500. The annual operating cost is $1,000. Which machine should be used to justify the purchase of such machine if money is worth 7% and calculate the difference between the equivalent annual worths.
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 $10,000 salvage value. Additional annual information for this new product line follows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Sales of new product $ 1,970,000 Expenses Materials, labor, and overhead (except depreciation) 1,502,000 Depreciation—Machinery 120,250 Selling, general, and administrative expenses 180,000 Required:1. Determine income and net cash flow for each year of this machine’s life2. 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%. Do do not give solution in image fromat
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 $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Sales of new product $ 1,940,000 Expenses Materials, labor, and overhead (except depreciation) 1,507,000 Depreciation—Machinery 117,750 Selling, general, and administrative expenses 149,000 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%
You are evaluating a potential investment in equipment. The equipment's basic price is $158,000, and shipping costs will be $6,300. It will cost another $15,800 to modify it for special use by your firm, and an additional $7,900 to install it. The equipment falls in the MACRS 3-year class that allows depreciation of 33% the first year, 45% the second year, 15% the third year, and 7% the fourth year. You expect to sell the equipment for 26,300 at the end of three years. The equipment is expected to generate revenues of $147,000 per year with annual operating costs of $75,000. The firm's marginal tax rate is 25.0%. What is the after-tax operating cash flow for year 3? $61,050 $32,850 $72,000 $43,800 $28,200
You are evaluating a potential investment in equipment. The equipment's basic price is $126,000, and shipping costs will be $3,800. It will cost another $18,900 to modify it for special use by your firm, and an additional $6,300 to install it. The equipment falls in the MACRS 3-year class that allows depreciation of 33% the first year, 45% the second year, 15% the third year, and 7% the fourth year. You expect to sell the equipment for 23,300 at the end of three years. The equipment is expected to generate revenues of $115,000 per year with annual operating costs of $61,000. The firm's marginal tax rate is 30.0%. What is the value of the after-tax cash flow associated with the sale of the equipment? ANSWER CHOICES $8,715 $16,310 $12,450 $19,565 $7,115 Correct answer is $19,565. Need help with the steps to solve the problem
Pompeo Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $95,000. The freight and installation costs for the equipment are $4,500. If purchased, annual repairs and maintenance are estimated to be $3,600 per year over the 4-year useful life of the equipment. Alternatively, Pompeo can lease the equipment from a domestic supplier for $29,200 per year for 4 years, with no additional costs. Question Content Area Prepare a differential analysis dated December 11 to determine whether Pompeo should Lease Equipment (Alternative 1) or Buy Equipment (Alternative 2). Hint: This is a lease-or-buy decision, which must be analyzed from the perspective of the equipment user, as opposed to the equipment owner. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential AnalysisLease Equipment (Alt. 1) or Buy Equipment (Alt. 2)December 11 Lease…
A local delivery company has purchased adelivery truck for $15,000. The truck will be depreciated under MACRS as five-year property. Thetruck’s market value (salvage value) is expectedto decrease by $2,500 per year. It is expected thatthe purchase of the truck will increase its revenueby $10,000 annually. The O&M costs are expectedto be $3,000 per year. The firm is in the 40% taxbracket, and its MARR is 15%. If the company plansto keep the truck for only two years, what would bethe equivalent present worth?
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 $499,000 cost with an expected four-year life and a $20,000 salvage value. Additional annual information for this new product line follows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Sales of new product $ 1,870,000 Expenses Materials, labor, and overhead (except depreciation) 1,508,000 Depreciation—Machinery 119,750 Selling, general, and administrative expenses 157,000 Required: Determine income and net cash flow for each year of this machine’s life. Compute this machine’s payback period, assuming that cash flows occur evenly throughout each year. Compute net present value for this machine using a discount rate of 7%.

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