Exercise 12-15 (Algo) Internal Rate of Return and Net Present Value (L012-2, L012-3] Henrie's Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $151,410, including freight and installation. Henrie's estimated the new machine would increase the company's cash inflows, net of expenses, by $42,000 per year. The machine would have a five-year useful life and no salvage value. Click here to view Exhibit 128-1 and Exhibit 128-2, to determine the appropriate discount factor(s) using table. Required: 1. What is the machine's internal rate of return? (Round your answer to the nearest whole percentage, i.e. 0.123 should be considered as 12%.) 2. Using a discount rate of 12%, what is the machine's net present value? Interpret your results. 3. Suppose the new machine would increase the company's annual cash inflows, net of expenses, by only $36,930 per year. Under these conditions, what is the internal rate of return? (Round your answer to the nearest whole percentage, i.e. 0.123 should be considered as 12%.) 1. Internal rate of return 2. Net present value

Exercise 12-15 (Algo) Internal Rate of Return and Net Present Value (L012-2, L012-3] Henrie's Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $151,410, including freight and installation. Henrie's estimated the new machine would increase the company's cash inflows, net of expenses, by $42,000 per year. The machine would have a five-year useful life and no salvage value. Click here to view Exhibit 128-1 and Exhibit 128-2, to determine the appropriate discount factor(s) using table. Required: 1. What is the machine's internal rate of return? (Round your answer to the nearest whole percentage, i.e. 0.123 should be considered as 12%.) 2. Using a discount rate of 12%, what is the machine's net present value? Interpret your results. 3. Suppose the new machine would increase the company's annual cash inflows, net of expenses, by only $36,930 per year. Under these conditions, what is the internal rate of return? (Round your answer to the nearest whole percentage, i.e. 0.123 should be considered as 12%.) 1. Internal rate of return 2. Net present value

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

See similar textbooks

Similar questions

hdk.7
Determine Cash Flows Natural Foods Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The new garden tool is expected to generate additional annual sales of 5,900 units at $44 each. The new manufacturing equipment will cost $108,600 and is expected to have a 10-year life and a $8,300 residual value. Selling expenses related to the new product are expected to be 4% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis: Direct labor $7.50 Direct materials 24.40 Fixed factory overhead-depreciation 1.70 Variable factory overhead 3.80 Total $37.40 Determine the net cash flows for the first year of the project, Years 2-9, and for the last year of the project. Use the minus sign to indicate cash outflows. Do not round your intermediate calculations but, if required, round your final answers to the nearest dollar. Natural Foods Inc. Net Cash Flows Year 1 Years 2-9 Last Year Initial investment Operating cash flows:…
Finance
Determine Cash Flows Natural Foods Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The new garden tool is expected to generate additional annual sales of 5,600 units at $54 each. The new manufacturing equipment will cost $127,400 and is expected to have a 10-year life and a $9,800 residual value. Selling expenses related to the new product are expected to be 5% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis: Direct labor $9.20 Direct materials 30.00 Fixed factory overhead-depreciation 2.10 Variable factory overhead 4.60 Total $45.90 Determine the net cash flows for the first year of the project, Years 2-9, and for the last year of the project. Use the minus sign to indicate cash outflows. Do not round your intermediate calculations but, if required, round your final answers to the nearest dollar. Natural Foods Inc. Net Cash Flows Year 1 Years 2-9 Last Year Initial investment Operating cash flows:…
Determine Cash Flows Natural Foods Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The new garden tool is expected to generate additional annual sales of 6,200 units at $46 each. The new manufacturing equipment will cost $120,900 and is expected to have a 10-year life and a $9,300 residual value. Selling expenses related to the new product are expected to be 4% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis: Direct labor $7.80 Direct materials 25.60 Fixed factory overhead-depreciation 1.80 Variable factory overhead 3.90 Total $39.10 Determine the net cash flows for the first year of the project, Years 2–9, and for the last year of the project. Use the minus sign to indicate cash outflows. Do not round your intermediate calculations but, if required, round your final answers to the nearest dollar. Natural Foods Inc. Net Cash Flows Year 1 Years 2-9 Last Year Initial…
Calculating initial cash flow DuPree Coffee Roasters, Inc., wishes to expand and modernize its facilities. The installed cost of a proposed computer-controlled automatic-feed roaster will be $139,000. The firm has a chance to sell its 4-year-old roaster for $35,200. The existing roaster originally cost $59,400 and was being depreciated using MACRS and a 7-year recovery period (see the table). DuPree is subject to a 21% tax rate. a. What is the book value of the existing roaster? b. Calculate the after-tax proceeds of the sale of the existing roaster. c. Calculate the change in net working capital using the following figures: Anticipated Changes in Current Assets and Current Liabilities Accruals Inventory Accounts payable Accounts receivable Cash - $19,300 +49,300 +40,900 + 69,400 0 a. The remaining book value of the existing roaster is $. (Round to the nearest dollar.) b. The after-tax proceeds of the sale of the existing roaster will be $. (Round to the nearest dollar.) c. The change…
Determine cash flows Kauai Tools Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The new garden tool is expected to generate additional annual sales of 9,300 units at $30 each. The new manufacturing equipment will cost $110,800 and is expected to have a 10-year life and a $8,500 residual value. Selling expenses related to the new product are expected to be 4% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis: Direct labor Direct materials Fixed factory overhead-depreciation Variable factory overhead Total Determine the net cash flows for the first year of the project, Years 2-9, and for the last year of the project. Use the minus sign to indicate cash outflows. Do not round your intermediate calculations but, if required, round your final answers to the nearest dollar. Kauai Tools Inc. Net Cash Flows Line Item Description Initial investment Operating cash flows: $5.10 16.70 1.10 2.60 $25.50 Year 1 Years…
2. Incremental costs - Initial and terminal cash flow Consider the case of Marston Manufacturing Company: Marston Manufacturing Company is considering a project that requires an investment in new equipment of $3,780,000. Under the new tax law, the equipment is eligible for 100% bonus depreciation at t = 0 so the equipment will be fully depreciated at the time of purchase. Marston estimates that its accounts receivable and inventories need to increase by $720,000 to support the new project, some of which is financed by a $288,000 increase in spontaneous liabilities (accounts payable and accruals). The company's tax rate is 25%. The after-tax cost of Marston’s new equipment is . Marston’s initial net investment outlay is . Suppose Marston’s new equipment is expected to sell for $600,000 at the end of its four-year useful life, and at the same time, the firm expects to recover all of its net operating working capital (NOWC) investment. Remember, that under the…
Subject: accounting
Cash Payback Period, Net Present Value Analysis, and Qualitative Considerations The plant manager of Shenzhen Electronics Company is considering the purchase of new automated assembly equipment. The new equipment will cost $72,000. The manager believes that the new investment will result in direct labor savings of $18,000 per year for 10 years. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 a. What is the payback period on this project?fill in the blank 1 years b. What is the net present value, assuming a 12% rate of return? Use the table provided above. Round to the nearest whole dollar. Net present value…
(Net present value calculation) Carson Trucking is considering whether to expand its regional service center in Mohab, UT. The expansion requires the expenditure of $9,500,000 on new service equipment and would generate annual net cash inflows from reduced costs of operations equal to $3.500.000 per year for each of the next 7 years. In year 7 the firm will also get back a cash flow equal to the salvage value of the equipment, which is valued at $0.9 million. Thus, in year 7 the investment cash inflow totals $4,400,000 Calculate the project's NPV using a discount rate of percent If the discount rate is 8 percent, then the projects NPV is 3 (Round to the nearest dollar)

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS