Direct Energy has two options for upgrading a natural gas power station to meet new government standards. Option 1: Direct Energy will make the upgrades themselves. This is expected to cost $10,900 at the end of each month for 13 years. At the end of the operation (in 13 years) Direct Energy expects to sell all equipment needed for the upgrade for $122,000. Option 2: Pay experienced contractors. This will cost $45,000 up front and $10,400 monthly for 11 years. Assume all interest is s25% compounded monthly. Round the answers to NPV (Option 1), and NPV (Option 2) to the nearest dollar. Round 1other answers to two decimal places where apple

Direct Energy has two options for upgrading a natural gas power station to meet new government standards. Option 1: Direct Energy will make the upgrades themselves. This is expected to cost $10,900 at the end of each month for 13 years. At the end of the operation (in 13 years) Direct Energy expects to sell all equipment needed for the upgrade for $122,000. Option 2: Pay experienced contractors. This will cost $45,000 up front and $10,400 monthly for 11 years. Assume all interest is s25% compounded monthly. Round the answers to NPV (Option 1), and NPV (Option 2) to the nearest dollar. Round 1other answers to two decimal places where apple

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Sale of equipment
Payments (Cost)
(Residual)
P/Y =
C/Y =
N.
I/Y =
PV =
PMT =
FV =
(If the NPV is negative, enter it as a negative number. If the NPV is zero, enter 0.)
NPV (Option 1) = $

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Rare Agri-Products Ltd. is considering a new project with a projectedlife of seven (7) years. The project falls under the government’ssubsidy program for encouraging local agricultural products and iseligible for a one-time rebate of 25% on any initial equipmentinstalled for the project. The initial equipment (IE) will cost$41,000,000. At the end of year 1, An additional equipment (AE) costing$3,500,000 will be needed at the end of year 3. At the end of seven(7) years, the original equipment, IE, will have no resale value butthe supplementary equipment, AE, can be sold for $50,000. A workingcapital of $1,350,000 will be needed.The project is forecast to generate sales of agri-products over theseven years as follows:Year 1 70,000 unitsYear 2 100,000 unitsYears 3-5 250,000 unitsYears 6-7 325,000 unitsA sale price of $150 per unit for the first two years is expected andthen decline to $90 per unit thereafter as the newness of the productloses some sheen. The variable expenses will amount…
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Rare Agri-Products Ltd. is considering a new project with a projected Life of seven (7) years. The project falls under the government’s subsidy program for encouraging local agricultural products and is eligible for a one-time rebate of 25% on any initial equipment installed for the project. The initial equipment (IE) will cost $41,000,000. An additional equipment (AE) costing $3,500,000 will be needed at the end of year 3. At the end of seven (7) years, the original equipment, IE, will have no resale value but the supplementary equipment, AE, can be sold for $50,000. A working capital of $1,350,000 will be needed. The project is forecast to generate sales of agri-products over the seven years as follows: Year 1 70,000 units Year 2 100,000 units Year’s 3-5 250,000 units Year’s 6-7 325,000 units A sale price of $150 per unit for the first two years is expected and then decline to $90 per unit thereafter as the newness of the product loses some sheen. The variable expenses will amount to…