Denny Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine would cost $340,000 and would have a ten-year useful life. Unfortunately, the new machine would have no salvage value. The new machine would cost $50,000 per year to operate and maintain, but would save $95,000 per year in labor and other costs. The old machine can be sold now for scrap for $30,000. The simple rate of return on the new machine is closest to (Ignore income taxes.): (Round your answer to 1 decimal place.) Multiple Choice

Denny Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine would cost $340,000 and would have a ten-year useful life. Unfortunately, the new machine would have no salvage value. The new machine would cost $50,000 per year to operate and maintain, but would save $95,000 per year in labor and other costs. The old machine can be sold now for scrap for $30,000. The simple rate of return on the new machine is closest to (Ignore income taxes.): (Round your answer to 1 decimal place.) Multiple Choice

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 10P

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Although the Chen Company’s milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $110,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $19,000 per year. It would have zero salvage value at the end of its life. The project cost of capital is 10%, and its marginal tax rate is 25%. Should Chen buy the new machine?
Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.
Denny Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine would cost $180,000 and would have a twelve-year useful life. Unfortunately, the new machine would have no salvage value. The new machine would cost $26, 000 per year to operate and maintain, but would save $58,000 per year in labor and other costs. The old machine can be sold now for scrap for $18,000. The simple rate of return on the new machine is closest to (Ignore income taxes.):
Denny Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine would cost $340,000 and would have a ten-year useful life. Unfortunately, the new machine would have no salvage value. The new machine would cost $50,000 per year to operate and maintain, but would save $95,000 per year in labor and other costs. The old machine can be sold now for scrap for $30,000. The simple rate of return on the new machine is closest to (Ignore income taxes.): (Round your answer to 1 decimal place.)
Denny Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine would cost $290,000 and have a tenericals controll nortunately, the new machine would have no salvage value. The new machine would cost $48,000 per year to operate and maintain but would save $89,000 per year in labor and other costs. The old machine can be sold now for scrap for $29,000. The simple rate of return on the new machine is closest to (Ignore income taxes.):
The Container Corporation of America is considering replacing an automatic painting machine purchased 9 years ago for $700,000. It has a market value today of $40,000. The unit costs $350,000 annually to operate and maintain. A new unit can be purchased for $800,000 and will have annual O&M costs of $120,000. If the old unit is retained, it will have no salvage value at the end of its remaining life of 10 years. The new unit, if purchased, will have a salvage value of $100,000 in 10 years. Using an EUAC measure and a MARR of 20% should the automatic painting machine be replaced if the old automatic painting machine is taken as a trade-in for its market value of $40,000? Solve, a. Use the cash flow approach (insider’s viewpoint approach). b. Use the opportunity cost approach (outsider’s view point approach).
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The Sumitomo Chemical Corporation is considering replacing a 5-year-old machine that originally cost $50,000 and can be sold for $60,000. This machine is totally depreciated. The replacement machine would cost $125,000 and have a 5-year expected life over which it would be depreciated down using the straight-line method and have no salvage value at the end of five years. The new machine would produce savings before depreciation and taxes of $45,000 per year. Assuming a 34 percent marginal tax rate and a required return of 10%, calculate The internal rate of return and the net present value. Please show work in Excel.
The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $61,000. The machine would replace an old piece of equipment that costs $15,000 per year to operate. The new machine would cost $6,000 per year to operate. The old machine currently in use is fully depreciated and could be sold now for a salvage value of $20,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.) 1. Depreciation expense 2. Incremental net operating income 3. Initial investment 4.…
The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $59,000. The machine would replace an old piece of equipment that costs $15,000 per year to operate. The new machine would cost $7,000 per year to operate. The old machine currently in use is fully depreciated and could be sold now for a salvage value of $25,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.)
The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $55,000. The machine would replace an old piece of equipment that costs $14,000 per year to operate. The new machine would cost $6,000 per year to operate. The old machine currently in use is fully depreciated and could be sold now for a salvage value of $21,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.) ces 1. Depreciation expense 2. Incremental net operating income 3 Initial investment…
Dell is considering replacing one of its material handling systems. It has an annual O&M cost of $48,000, a remaining operational life of 8 years, and an estimated salvage value of $6,000 at that time. A new system can be purchased for $175,000. It will be worth $50,000 in 8 years, and it will have annual O&M costs of only $17,000 per year due to new technology. If the new system is purchased, the old system will be traded in for $55,000, even though the old system can be sold for only $45,000 on the open market. Leasing a new system will cost $31,000 per year, payable at the beginning of the year, plus operating costs of $15,000 per year payable at the end of the year. If the new system is leased, the existing material handling system will be sold for its market value of $45,000. Use a planning horizon of 8 years, an annual worth analysis, and MARR of 15% to decide which material handling system to recommend: (i) keep existing, (ii) trade in existing and purchase new, or (iii)…