Exeter Division of Wetherby Labs acquired an asset with a cost of $800,000 and a four-year life. The cash flows from the asset,considering the effects of inflation, were scheduled as follows:Year1234Cash Flow$ 267,000292,000307,000317,000The cost of the asset is expected to increase at a rate of 5 percent per year, compounded each year. Performance measures arebased on beginning-of-year gross book values for the investment base. Ignore taxes.Required:a. What is the ROI for each year of the asset's life, using a historical cost approach?b. What is the ROI for each year of the asset's life if both the investment base and depreciation are determined by the current cost ofthe asset at the start of each year?Complete this question by entering your answers in the tabs below.

In the historical cost approach, the Return on Investment (ROI) for each year is calculated based on…

Answered: Exeter Division of Wetherby Labs…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 15P

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Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the following cash flows over the next five years: $99,000, $88,000, $92,000. $87,000, and $72,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel. see Appendix C.
A project has a first cost of S120,000 and an estimated salvage value of $20,000 at the end of 25 years. Estimated average annual receipts are 527,900. Estimated average annual disbursements for everything except income taxes are 515,060. Estimated average annual disbursements for income taxes are 54,420. Assuming that annual receipts and disbursements will be uniform throughout the 25 years, analyze the above data and compute internal rate of return. Comment whether this project is viable if the Bank offer an interest rate of 8% on loan.
Consider a piece of equipment for which the expenditure at the beginning of period 1 is $20,000 The net revenue at the end of year 1 is $8,000 The net revenue at the end of year 2 is $14,000 The net revenue at the end of year 3 is $18,000, which includes salvaging the equipment. The interest rate is 5%. What is the net present value of this investment over the three year period including the initial purchase of the asset and the revenue from the first three years of operation (including sale of the equipment)?
Oriental Corporation has gathered the following data on a proposed investment project: Investment in depreciable equipment $ 560,000 Annual net cash flows $ 82,000 Life of the equipment 16 years Salvage value $ 0 Discount rate 9 % The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment. The payback period for the investment would be:
Nestor Company is considering the purchase of an asset for $100,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year. Year 1 Year 2 Year 3 Year 4 Year 5 Annual Net Cash Flows $ 40,000 $ 40,000 $ 35,000 $ 35,000 $ 30,000 Compute the payback period for this investment. (Round to two decimal places.) Multiple Choice O 2.85 years. 2.57 years.
Subject: acounting
A new asset is expected to provide service over the next four years. It will cost $510,000, generates annual cash inflows of $182, 000, and requires cash operating expenses of $40, 000 each year. In addition, a $20, 000 overhaul will be needed in year 3. Period FV of 1 (i = 10%) * FV of a series of $1 cash flows (i = 10%) * PV of $1 (i = 10%) PV of a series of $1 cash flows (i = 10%) 1 1.100 1.000 0.909 0.909 2 1.210 2.100 0.826 1.736 3 1.331 3.310 0.751 2.487 4 1.464 4.641 0.683 3.170 If the company requires a 10% rate of return, the net present value of this machine would be: Multiple Choice None of the answers is correct. \$ (74, 880) , and the machine does not meet the company's rate - of - return requirement. $(79, 860), and the machine does not meet the company's rate - of - return requirement. \$ (74, 880) , and the machine meets the company's rate - of - return requirement. $(104, 060), and the machine meets the company's rate - of - return requirement.
Joetz Corporation has gathered the following data on a proposed investment project (Ignore income taxes.): Investment required in equipment. Annual cash inflows $37,000 $ 8,800 $ Salvage value of equipment Life of the investment 0 15 years 10% Required rate of return. The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment. The simple rate of return for the investment (rounded to the nearest tenth of a percent) is: (Round your answer to 1 decimal place.) Multiple Choice
Lanham Incorporated recently invested in a project with a 3-year life span. The net present value was $9,000 and annual cash inflows were $21,000 for year 1; $24,000 for year 2; and $27,000 for year 3. The initial investment for the project, assuming a 15% required rate of return, was Year Present Value of 1 at 15% PV of an Annuity of 1 at 15% 1 .870 .870 2 .756 1.626 3 .658 2.283
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An investment of $600,000 is made in equipment that qualifies as 3-year equipment for MACRS-GDS depreciation. The before-tax cash flows, measured in constant dollars, for the investment consist of a uniform annual series of $200,000 plus a $200,000 salvage value at the end of the 5-year planning horizon. A 25% tax rate and 3% inflation rate apply. The real ATMARR is 10%. Determine the after-tax cash flows, in constant dollars, for each year. Determine the present worth for the investment. Determine the real internal rate of return for the investment If you could please show me the calculations in excel I would really appreciate it.
An equipment costing P120,000 is expected with an estimated economic life of 6 years, salvage value of P10,000, is expected to bring in net cash inflow of P70,000 in the first year of operations, P50,000 in the second year, P30,000 in the third year, P20,000 in the fourth year, P10,000 in the fifth year and P5,000 in the sixth year. Compute the net present value assuming that the desired rate of return if 18%.

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