STmComputer Disk Duplicators, Inc. has been considering several capital investment proposals for the year beginning in 2022. For each investment proposal, therelevant cash flows and other relevant financial data are summarized in the table below. New assets will be depreciated under the MACRS system rather than beingfully expensed right away. In the case of a replacement decision, the total installed cost of the equipment will be partially offset by the sale of existing equipment. Thefirm is subject to a 40 percent tax rate on ordinary income and on long-term capital gains. The firm's cost of capital is 15 percent.Type of CapitalBudgeting DecisionOA. $34,400OB. $66,4001ExpansionOC. $80,000OD. $13,600Type of ProjectCost of new assetInstallation costsMACRS (new asset)Original cost of old assetPurchase date (old asset)Sale proceeds (old asset)MACRS (old asset)Annual net profits beforedepreciation & taxes (old)Annual net profits beforedepreciation & taxes (new) $250,000*Not applicableFor Proposal 2, the book value of the existing asset at the end of 2021 isIndependent$1,500,000$010 yearsN/A*N/AN/AN/AProposalN/A2ReplacementMutuallyExclusivewith 3$200,000$05 years$80,0001/1/2018$50,0005 years$30.0003ReplacementMutuallyExclusive$100,000with 2$300,000$15,0005 years$100,0001/1/2021$120,0005 years$25,000$175,000(See Table 11.2)

Answered: Image /qna-images/answer/52229989-8831-480a-8a84-3cc875f2e7b7.jpg

Computer Disk Duplicators, Inc. has been considering several capital investment proposals for the year beg relevant cash flows and other relevant financial data are summarized in the table below. New assets will be fully expensed right away. In the case of a replacement decision, the total installed cost of the equipment will firm is subject to a 40 percent tax rate on ordinary income and on long-term capital gains. The firm's cost of Type of Capital Budgeting Decision 1 Expansion Independent $1,500,000 SO 10 years N/A* N/A N/A N/A Proposal Ν/Α. $250,000 2 Replacement Mutually Exclusive Type of Project Cost of new asset Installation costs MACRS (new asset) Original cost of old asset Purchase date (old asset) Sale proceeds (old asset) MACRS (old asset) Annual net profits before depreciation & taxes (old) Annual net profits before depreciation & taxes (new) *Not applicable For Proposal 2, the book value of the existing asset at the end of 2021 is with 3 $200,000 $0 3 Replacement Mutually Exclusive with 2 $300,000 $15,000 5 years $100,000 1/1/2021 $120,000 5 years $25,000 $175,000 5 years $50,000 1/1/2018 $50,000 5 years $30,000 $100,000 ..... (See Table 11.2) 4

Computer Disk Duplicators, Inc. has been considering several capital investment proposals for the year beg relevant cash flows and other relevant financial data are summarized in the table below. New assets will be fully expensed right away. In the case of a replacement decision, the total installed cost of the equipment will firm is subject to a 40 percent tax rate on ordinary income and on long-term capital gains. The firm's cost of Type of Capital Budgeting Decision 1 Expansion Independent $1,500,000 SO 10 years N/A* N/A N/A N/A Proposal Ν/Α. $250,000 2 Replacement Mutually Exclusive Type of Project Cost of new asset Installation costs MACRS (new asset) Original cost of old asset Purchase date (old asset) Sale proceeds (old asset) MACRS (old asset) Annual net profits before depreciation & taxes (old) Annual net profits before depreciation & taxes (new) *Not applicable For Proposal 2, the book value of the existing asset at the end of 2021 is with 3 $200,000 $0 3 Replacement Mutually Exclusive with 2 $300,000 $15,000 5 years $100,000 1/1/2021 $120,000 5 years $25,000 $175,000 5 years $50,000 1/1/2018 $50,000 5 years $30,000 $100,000 ..... (See Table 11.2) 4

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 1MAD: San Lucas Corporation is considering investment in robotic machinery based upon the following...

See similar textbooks

Similar questions

Chart the net present value (NPV) of these projects. Label the intersection points on the x- and y- axes and the cross-over point.
Ranger Corporation has decided to invest in renewable energy sources to meet part of its energy needs for production. It is considering solar power versus wind power. After considering cost savings as well as incremental revenues from selling excess electricity into the power grid, it has determined the following. Present value of annual cash flows Initial investment Net present value $ Profitability index Determine the net present value and profitability index of each project. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to O decimal places, e.g. 125 and profitability index answers to 2 decimal places, e.g. 15.25.) Solar $52,580 $39,500 Solar Which energy source should it choose? The company should choose solar Wind $128,450 $105,300 $ energy source. Wind
Calculate the Net present value of the replacement decision? At times firms will need to decide if they want to continue to use their current equipment or replace the equipment with newer equipment. The company will need to do replacement analysis to determine which option is the best financial decision for the company. Price Co. is considering replacing an existing piece of equipment. The project involves the following: The new equipment will have a cost of $1,800,000, and it will be depreciated on a straight-line basis over a period of six years (years1-6). The old machine is also being depreciated on a straight-line basis. It has a book value of $200,000 (at year O) and four more years of depreciation left ($50,000 per year). . The new equipment will have a salvage value of $0 at the end of the project's life (year 6). The old machine has a current salvage value (at year 0) of $300,000. Replacing the old machine will require an investment in net working capital (NWC) of $20,000…
Ford is evaluating a capital investment to convert it's current plant that produces Ford Focus to an electric Ford Ranger. Which of the following must Ford consider when evaluating this capital investment? All of the sales revenue from the new electric Ford Ranger will be included and accounted for when determining future cash flows for NPV analysis. Ford will include any sales revenue from the Ford Focus in its future cash flows of the capital investment project. Ford will need to deduct the current revenue from sales of the Focus when determining future cash flows of for the electric Ford Ranger project. Ford does not consider the Ford Focus revenue as the two projects are independent.
Crane Corporation has decided to invest in renewable energy sources to meet part of its energy needs for production. It is considering solar power versus wind power. After considering cost savings as well as incremental revenues from selling excess electricity into the power grid, it has determined the following. Solar Wind Present value of annual cash flows $56,090 $130,820 Initial investment $39,500 $105,500 Determine the net present value and profitability index of each project. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to 0 decimal places, e.g. 125 and profitability index answers to 2 decimal places, e.g. 15.25.) Solar Wind Net present value $enter a dollar amount rounded to 0 decimal places $enter a dollar amount rounded to 0 decimal places Profitability index enter the number rounded to 2 decimal places…
i) Calculate the payback period for each project. ii) Calculate the net present value (NPV) for each project.
Ranger Corporation has decided to invest in renewable energy sources to meet part of its energy needs for production. It is considering solar power versus wind power. After considering cost savings as well as incremental revenues from selling excess electricity into the power grid, it has determined the following. Solar Wind Present value of annual cash flows $52,580 $128,450 Initial investment $39,500 $105,300 Determine the net present value and profitability index of each project. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to 0 decimal places, e.g. 125 and profitability index answers to 2 decimal places, e.g. 15.25.) Solar Wind Net present value $ $ Profitability index Which energy source should it choose? The company should choose energy source.
1. Calvulate the internal rate of return(IRR) of each project and based on this criterion. Indicate which project you would recommend or acceptance.
San Lucas Corporation is considering investment in robotic machinery based upon the following estimates: a. Determine the net present value of the equipment, assuming a desired rate of return of 10% and annual net cash flows of 700,000. Use the present value tables appearing in Exhibits 2 and 5 of this chapter. b. Determine the net present value of the equipment, assuming a desired rate of return of 10% and annual net cash flows of 500,000, 700,000, and 900,000. Use the present value tables (Exhibits 2 and 5) provided in the chapter in determining your answer. c. Determine the minimum annual net cash flow necessary to generate a positive net present value, assuming a desired rate of return of 10%. Round to the nearest dollar. d. Interpret the results of parts (a), (b), and (c).
There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $35,000 and is expected to generate the following cash flows: Use the information from the previous exercise to calculate the internal rate of return on both projects and make a recommendation on which one to accept. For further instructions on internal rate of return in Excel, see Appendix C.
The management of Ryland International Is considering Investing in a new facility and the following cash flows are expected to result from the investment: A. What Is the payback period of this uneven cash flow? B. Does your answer change if year 6s cash inflow changes to $920,000?
What are the correct free cash flows for evaluating this project? Start from the correct net income which has already been given.