Exercise Able Company's management is considering the purchase of a new machine at a cost of $165,000. The machine has a 5 year life expectancy and will generate additional cash flows of $75,000 per year and additional expenses (other than depreciation) of $25,000 per year (all cash). Depreciation will use the straight line method. The time value of money (cost of capital is 10%) Required 1. Compute the Payback period. 2. Compute the Accounting Rate of Return. 3. Compute the Net Present Value. 4. Re-compute the Payback period only if we assume that both revenues and cash expenses increase by 10% each year.

Exercise Able Company's management is considering the purchase of a new machine at a cost of $165,000. The machine has a 5 year life expectancy and will generate additional cash flows of $75,000 per year and additional expenses (other than depreciation) of $25,000 per year (all cash). Depreciation will use the straight line method. The time value of money (cost of capital is 10%) Required 1. Compute the Payback period. 2. Compute the Accounting Rate of Return. 3. Compute the Net Present Value. 4. Re-compute the Payback period only if we assume that both revenues and cash expenses increase by 10% each year.

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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Byron Corporation is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net cash flow of $130,000. The equipment will have an initial cost of $475,000, a 5-year useful life, and an estimated salvage value of $84,000. If the company's cost of capital is 11%, what is the approximate net present value? (Future Value of $1. Present Value of $1. Future Value Annuity of $1. Present Value Annuity of $1) Note: Use the appropriate factors from the PV tables. Multiple Choice $(5,467) $214,000 $130,000 $55,321
MANUAL SOLUTION AND CASH FLOW DIAGRAM !!
Bottoms up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $3,600 and sell its old washer for $900. The new washer will last for 6 years and save $1,100 a year in expenses. The opportunity cost of capital is 20% and the firms tax rate is 21%. a) if the firm uses straight-line depreciation over a 6 year life, what are the cash flows of the project in years 0 to 6? The new washer will have zero salvage value after 6 years, and the old washer is fully depreciated. (negative amounts should be indicated by a minus sign.) annual operating cash flow in year 0? annual operating cash flow in years 1 to 6? b) what is the project NPV? (Do not round intermediate calculations. round answer to 2 decimal places. c) what is the NPV if the investment is entitled to immediate 100% bonus depreciation? (do not round intermediate calculations. round your answer to 2 decimals places.
Technology Innovations is planning to purchase one of two chip insertion machines. Due to the pace of technological change in this area, it is realistic to assume that these are one-shot investments. The expected cash flows for each machine are shown below. MARR is 8%/year. Based on a present worth analysis, which machine is preferred?
Project A requires a $405,000 initial investment for new machinery. Project A is expected to yield income of $25,200 per year and net cash flow of $97,600 per year for the next five years. Compute Project A's payback period. Payback Period Numerator: = +/ = = Denominator: Payback Period Payback period 0 Please provide detailed solution
A machine costs $600,000 and is expected to yield an after-tax net income of $23,000 each year. Management predicts this machine has a 12-year service life and a $120,000 salvage value, and it uses straight-line depreciation. Compute this machine's accounting rate of return. Choose Numerator: 1 7 Accounting Rate of Return Choose Denominator:
A company is considering buying a new machine. Specific details: Initial Investment $400,000 Annual Cash Revenues $375,000 Annual Cash Expense $262,000 Expected Life 5 Years Salvage Value $0 Discount Rate 10% All cash flows are after tax. 1 Prepare a schedule that shows the applicable cash flows and other relevant items for this decision 2 Compute the payback period for the new machine 3 Compute the Accounting Rate of Return (ARR) for the new machine
What is the expected operating cash flow for year 2 of a project given the following information. To undertake the project, $321,000 must be spent on new equipment. The equipment has an expected life of 7 years and will be depreciated straight- line over that same period to a book value of 0. New annual sales of $211,000 are expected (expected sales are the same each year). Cost of goods sold are projected to be 44% of sales, Fixed cash operating expenses are $46,000 per year. Tax rate is 26%, in the event EBIT is negative, the firm would have a tax credit based on the 26% tax rate. O a. 78385.51 Ob. 65321.26 Oe. 64862.69 Od. 68135.92 O e. 82304.78 Of. 54216.64
A company is evaluating a capital investment with the following projections: Initial Investment = $75,000 Salvage value = $15,000 Project life = 10 years Capital budgeting assumptions: Old Machine is fully depreciated Old machine annual operating cost: 40,000 Old machine annual maintenance cost: 10,000 New machine annual operating cost: 20,000 New machine annual maintenance cost: 9,000 Discount rate: 10% Tax rate: 20% What is the project's internal rate of return (IRR)?Answer as a whole number. 5% would be answered as 5.
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