Exercise 10-12A (Algo) Determining the payback period LO 10-4 Fanning Airline Company is considering expanding its territory. The company has the opportunity to purchase one of two different used airplanes. The first airplane is expected to cost $14,800,000; it will enable the company to increase its annual cash Inflow by $3,700,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane costs $34,800,000; It will enable the company to Increase annual cash flow by $5,800,000 per year. This plane has an eight-year useful life and a zero salvage value. Required a1. Determine the payback period for each Investment alternative. a2. Identify the alternative Fanning should accept if the decision is based on the payback approach. Note: Round your answers to 1 decimal place. a-1. Alternative 1 (First plane) a-1. Alternative 2 (Second plane) a-2. Fanning should accept Payback Period years years

Exercise 10-12A (Algo) Determining the payback period LO 10-4 Fanning Airline Company is considering expanding its territory. The company has the opportunity to purchase one of two different used airplanes. The first airplane is expected to cost $14,800,000; it will enable the company to increase its annual cash Inflow by $3,700,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane costs $34,800,000; It will enable the company to Increase annual cash flow by $5,800,000 per year. This plane has an eight-year useful life and a zero salvage value. Required a1. Determine the payback period for each Investment alternative. a2. Identify the alternative Fanning should accept if the decision is based on the payback approach. Note: Round your answers to 1 decimal place. a-1. Alternative 1 (First plane) a-1. Alternative 2 (Second plane) a-2. Fanning should accept Payback Period years years

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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Problem 10-33 Calculating a Bid Price (L08) Komoka Enterprises needs someone to supply it with 155,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you've decided to bid on the contract. It will cost you $955,000 to install the equipment necessary to start production. The equipment will be depreciated at 30% ( Class 10), and you estimate that it can be salvaged for $100,000 at the end of the five-year contract. Your fixed production costs will be $450,000 per year, and your variable production costs should be $16.60 per carton. You also need an initial net working capital of $105.000. If your tax rate is 35% and you require a 12 % return on your Investment, what bid price should you submit? (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Bid price $ per carton D
Exercise 16-12A (Algo) Determining the payback period LO 16-4 Baird Airline Company is considering expanding its territory. The company has the opportunity to purchase one of two different used airplanes. The first airplane is expected to cost $13,020,000, it will enable the company to increase its annual cash inflow by $6.200,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane costs $40,040,000, it will enable the company to increase annual cash flow by $9.100,000 per year. This plane has an eight-year useful life and a zero salvage value. Required o. Determine the payback period for each investment alternative and identify the alternative Baird should accept if the decision is based on the payback approach. (Round your answers to 1 decimal place.) Payback Period a-1. Alternative 1 (First plane) years Altenative 2 (Second plane) years a-2. Baird should accept
Question 15 A dairy farm project has an initial requirement of $600,000 for fixed assets (i.e. goats) and $60,000 for net working capital. The price of their special goat cheese packages are $30.00 with a variable cost of $20.00 per package. The goats will be depreciated to a zero book value over the 3-year life of the project and will be worthless at the end of the project because the dairy farmer plans to give the goats away as pets. All of the net working capital will be recouped after 3 years. The expected annual operating cash flow is $240,000. If the tax rate is 35 percent, how sensitive is OCF to an increase of ten additional goat cheese packages sold? Group of answer choices $3.50 $6.50 $35.00 $65.00 $100.00
Exercise 14-2 (Algo) Net Present Value Analysis [LO14-2] The management of Kunkel Company is considering the purchase of a $20,000 machine that would reduce operating costs by $5,000 per year. At the end of the machine's five-year useful life, it will have zero salvage value. The company's required rate of return is 13%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table. Required: 1. Determine the net present value of the investment in the machine. 2. What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the net present value of the investment in the machine. (Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar amount. Use the appropriate table to determine the discount factor(s).) Net present value…
Question 10.2 Shooting Star, Inc. is considering a project that would have an eight -year life and would require a $2,000,000 investment in equipment. At the end of ten years, the project would terminate and the equipment would have no salvage value. The project would provide net income each year as follows: Sales $2,000,000 Less: Variable Expenses $1,600,000 Contribution Margin $400,000 Less: Fixed Expenses $200,000 Net Income $200,000 All of the above items, except for depreciation of $200,000 a year, represent cash flows. The depreciation is included in the fixed expenses. The company's required rate of return is 10%. (Ignore income taxes in this problem.) Required: What is the project's net present value? What is the project's internal rate of return? What is the project's payback period? What is the project's simple rate of…
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Exercise 12-2 (Algo) Net Present Value Analysis [LO12-2] The management of Kunkel Company is considering the purchase of a $26,000 machine that would reduce operating costs by $6,500 per year. At the end of the machine's five-year useful life, it will have zero salvage value. The company's required rate of return is 16%. Click here to view Exhibit 128-1 and Exhibit 128-2, to determine the appropriate discount factor(s) using table. Required: 1. Determine the net present value of the investment in the machine. 2. What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the net present value of the investment in the machine. (Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar amount. Use the appropriate table to determine the discount factor(s).) Net present value…
3 TWO PROJECTS A company wishes to use a five-year time scale over which to appraise the following projects, with no allowance for scrap values. Its required rate of return is 17%. Project X Purchase of patent rights to a new process at an initial cost of $320,000 payable immediately. The new process will enable the company to reduce its labour force, at present incurring a total wages bill of $280,000, by a quarte: and will allow an increased production capacity of 5,000 units per year of another existing product which at present is sold at $12 per unit with direct costs of $6. There is an 80% chance that the extra potential production could all be sold, with a 20% chance of demand only taking up an extra 3,000 units per year. Production would be adjusted to match demand. This product is made with hardly any labour. Project Y Installation of a mini-computer to deal with the accounting functions at an annual rental charge of $50.000, paid in advance At present the company uses an IT…
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3 #12 Palmer Corporation is considering the purchase of a new plece of equipment. The cost savings from the equipment would result in an annual increase in net operating income of $100,000. The equipment will have an initial cost of $400,000 and a 7-year useful life. If the salvage value of the equipment is estimated to be $75,000, what is the accounting rate of return? Multiple Choice 14.28% 25.00% 4211% 147.37% Q
Required information Exercise 14-8 (Static) Payback Period and Simple Rate of Return [LO14-1, LO14-6] [The following information applies to the questions displayed below.] Nick's Novelties, Inc., is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $300,000, have an eight-year useful life, and have a total salvage value of $20,000. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues $200,000 Less operating expenses: $100,000 7,000 35,000 Commissions to amusement houses Insurance Depreciation 160,000 $ 40,000 Maintenance 18,000 Net operating income Exercise 14-8 Part 1 (Static) Required: la. Compute the payback period associated with the new electronic games. 1b. Assume that Nick's Novelties, Ic., will not purchase new games unless they provide a payback period of five years or less. Would the company purchase the new games?

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