Eden Publishing Company Limited is planning to purchase a printing machine for $9,660,000. The machine has an estimated life of 6 years. It is estimated that the machine's maintenance expenses are around $15,600 per year and a full-time worker will be employed at a wage of $150,000 per year to operate the machine. Eden expects to generate income by producing 348,500 item X in the first 3 years, 235,000 in the 4th year and 225,000 in the 5th and 6th year. The selling price and raw material cost for each product is $50 and $15.5 respectively. The machine has a scrap value of $360,000 at the end of the 6th year. Suppose that the maintenance expenses remain no change for the 6 years. However, there is an annual rise of 3% for the worker's wage starting from the second year. (Assuming all payments and receipts occur at the beginning or the end of a year.) а. Prepare a table for the cash flow of the project. b. Calculate the NPV of the project cost of capital at 6%. с. Based on your calculation, suggest if this is a good investment.
Eden Publishing Company Limited is planning to purchase a printing machine for $9,660,000. The machine has an estimated life of 6 years. It is estimated that the machine's maintenance expenses are around $15,600 per year and a full-time worker will be employed at a wage of $150,000 per year to operate the machine. Eden expects to generate income by producing 348,500 item X in the first 3 years, 235,000 in the 4th year and 225,000 in the 5th and 6th year. The selling price and raw material cost for each product is $50 and $15.5 respectively. The machine has a scrap value of $360,000 at the end of the 6th year. Suppose that the maintenance expenses remain no change for the 6 years. However, there is an annual rise of 3% for the worker's wage starting from the second year. (Assuming all payments and receipts occur at the beginning or the end of a year.) а. Prepare a table for the cash flow of the project. b. Calculate the NPV of the project cost of capital at 6%. с. Based on your calculation, suggest if this is a good investment.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![Question 1
Eden Publishing Company Limited is planning to purchase a printing machine for $9,660,000.
The machine has an estimated life of 6 years. It is estimated that the machine's maintenance
expenses are around $15,600 per year and a full-time worker will be employed at a wage of
S150,000 per year to operate the machine. Eden expects to generate income by producing
348,500 item X in the first 3 years, 235,000 in the 4th year and 225,000 in the 5th and 6th year.
The selling price and raw material cost for each product is $50 and S15.5 respectively. The
machine has a scrap value of $360,000 at the end of the 6th year. Suppose that the maintenance
expenses remain no change for the 6 years. However, there is an annual rise of 3% for the
worker's wage starting from the second year. (Assuming all payments and receipts occur at the
beginning or the end of a year.)
Prepare a table for the cash flow of the project.
а.
b. Calculate the NPV of the project cost of capital at 6%.
с.
Based on your calculation, suggest if this is a good investment.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff3c726f5-de8a-4165-8e32-64e9ceccf2e4%2Fd872d421-f19f-410a-91dc-2e5677ed7bfc%2Fb2mkasu_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Question 1
Eden Publishing Company Limited is planning to purchase a printing machine for $9,660,000.
The machine has an estimated life of 6 years. It is estimated that the machine's maintenance
expenses are around $15,600 per year and a full-time worker will be employed at a wage of
S150,000 per year to operate the machine. Eden expects to generate income by producing
348,500 item X in the first 3 years, 235,000 in the 4th year and 225,000 in the 5th and 6th year.
The selling price and raw material cost for each product is $50 and S15.5 respectively. The
machine has a scrap value of $360,000 at the end of the 6th year. Suppose that the maintenance
expenses remain no change for the 6 years. However, there is an annual rise of 3% for the
worker's wage starting from the second year. (Assuming all payments and receipts occur at the
beginning or the end of a year.)
Prepare a table for the cash flow of the project.
а.
b. Calculate the NPV of the project cost of capital at 6%.
с.
Based on your calculation, suggest if this is a good investment.
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