Exercise A-18 (Static) Investment Decision with Unknown Economic LifeMitchell Company is considering an investment in a new machine, Managers at the company are uncertain about the economic life ofthe machine, because of the speed of innovation in the technology. The machine requires an investment of $1.56 million. After-taxcash flows are estimated to be $650,000 each year the machine is operating (and not obsolete). The company uses a 14 percentdiscount rate in evaluating capital investments. Use Exhibit A 9Required:What is the minimum economic life of the machine (in whole years) that would be required for it to have a positive net present value?Minimum economic lifeyears

Discounted Payback Period refers to the period or duration within which the company is able to…

Answered: Exercise A-18 (Static) 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 3 Kako Ltd is considering introducing a new product unto the market. This will require the injection of capital to the tune of GH¢20,000 for the purchase of the equipment for production. The cost of the building that Kako Ltd intends to use for the project is GH¢30,000. The Production and Marketing department has presented the information in the table below: 2019 Variable cost per unit of the product GH¢2 Selling price per unit GH¢6 Quantity 4000 units per annum Again the following information should be taken not of: Feasibility studies cost the company GH¢2000 Test marketing expenses amounts to GH¢3000 Variable cost will increase by 5% per annum Selling price will increase by 10% per annum Marketing expense will be 5% of sales revenue per year An initial working capital investment of GH¢2000 will be made. Subsequently, net working capital at the end of each year will be equal to 10 percent of sales for that year. In the final year of the…
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Typed solution only A company is trying to make a long-term investment decision: should it or should it not manufacture a new product? The company believes that$208,000 would need to be immediately invested into buying the required production equipment. At the end of Year 4 this investment project is likely to end. When that happens, all used equipment will be sold and bring the company $187,000 as the after-tax salvage value. A cash reserve in the amount of $38,000 would need to be set aside when the project begins, so that the company can cover any kind of repair costs to maintain the equipment, should those arise. This cash reserve will be increased by $6,000 each year and recovered when the project ends. The company estimates $75,000in after-tax profits (i.e., operating cash flow) each year of the project. The required rate of return is 10.8%. Calculate the Net Present Value of this project. Increase decimal places for any intermediate calculations, from the default 2 to 6 or…
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Question 1 You currently work at Happy home Construction company The government offered the company 4 projects to undertake in building houses Management is trying to select the best investment from among these alternative independent projects. Each alternative involves an initial outlay of $160,000 and a 10% cost of capital. Management requires that all project investments should be recovered in 4 years. Their cash flows are as follows: Year Kinstown St Christina St Thomp St Bess 1 60,000 40,000 41,000 0 2 50,000 60,000 41,000 60,000 3 40,000 0 41,000 0 4 30,000 40,000 41,000 56,000 5 20,000 20,000 41,000 50,000 6 8,000 60,000 0 80,000 1a. Calculate each project’s Payback Period. 1b. Based on the payback periods, which project(s) should they accept if the project(s) are independent. 1c. Which project(s) should they accept if the projects are mutually exclusive? PLEASE DO QUESTION 1…
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