Fantastic Footwear can invest in one of two different automated clicker cutters. The first, A, has a $150,000 first cost. A similar one with many extra features, B has a $579,000 first cost. A will save$50,000 per year over the cutter currently in use. B will save $160,000 per year. Each clicker cutter will last five years. If the MARR is 8 percent, which alternative is better? Use an IBB comparisonshould be chosenpercent. For the increment from cutter A to cutter B, the IRR is percent. Therefore,For the increment from the do-nothing alternative to cutter A. the IRR is(Type integers or decimals rounded to one decimal place as needed.)

The process that analyzes and evaluates a project's profitability is capital budgeting. A method for…

Answered: Fantastic Footwear can invest in one of…

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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Barnes' Bagles is considering manufacturing and selling a new bagel-shaped pizza--thick with a hole in the middle. Development will cost $100,000 and will take one year. If the pizzas are popular (80% probability) the cash flows will be $40,000 per year for 5 years starting in Year 1. If the pizzas are not a hit (20% probability) the cash flows will be $5,000 per year for 5 years. Calculate the ENPV of the project. Barnes' cost of capital is 10%. $18,855 $20,740 $22,815 $25,096 correct answer $27,606 DO NOT USE EXCEL
You have just been offered a contract worth $1.02 million per year for 6 years. However, to take the contract, you will need to purchase some new equipment. Your discount rate for this project is 11.7% You are still negotiating the purchase price of the equipment. What is the most you can pay for the equipment and still have a positive NPV? CEED The most you can pay for the equipment and achieve the 11.7% annual return is $ million (Round to two decimal places)
You have just been offered a contract worth $1.01 million per year for 6 years. However, to take the contract, you will need to purchase some new equipment. Your discount rate for this project is 12.3%. You are still negotiating the purchase price of the equipment. What is the most you can pay for the equipment and still have a positive NPV? The most you can pay for the equipment and achieve the 12.3% annual return is $ decimal places.) million. (Round to two
Haslam Homes is considering designing and marketing a concrete, yurt-based pre-fabricated home to compete in the doomsday prepper market. Development will cost $1,000,000 and will take one year. If the yurts are popular (30% probability) the cash flows will be $500,000 per year for 5 years starting in Year 1. If the yurts are not a hit (70% probability) the cash flows will be $100,000 per year for 5 years. Calculate the ENPV of the project. Haslam's cost of capital is 10%. -$137,212 -$150,934 -$166,027 correct answer -$182,630 -$200,893 DO NOT USE EXCEL
Elijah Enterprises will need to upgrade the computer system in 4 years. They anticipate the upgrade to cost $105,300. If the discount rate is 13%, what will be the required yearly investment needed to obtain the money for the upgrade?Round your (1+R)^n value to 2 decimal places and use that number for your final amount required rounded to the nearest dollar. Future Value / (1+R)^n = Amount Required / = What would be required if the discount rate was 8%? Future Value / (1+R)^n = Amount Required / =
FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $200,000 per year. Once in production, the bike is expected to make $300,000 per year for 10 years. Assume the cost of capital is 10%. a. Calculate the NPV of this investment opportunity, assuming all cash flows occur at the end of each year. Should the company make the investment? b. By how much must the cost of capital estimate deviate to change the decision? (Hint: Use Excel to calculate the IRR.) c. What is the NPV of the investment if the cost of capital is 14%? Note: Assume that all cash flows occur at the end of the appropriate year and that the inflows do not start until year 7.
Elijah Enterprises will need to upgrade the computer system in 5 years. They anticipate the upgrade to cost $98,900. If the discount rate is 15%, what will be the required yearly investment needed to obtain the money for the upgrade?Round your (1+R)^n value to 2 decimal places and use that number for your final amount required rounded to the nearest dollar.
ZipCar auto parts store has $88,000 to invest in a project to detect and reduce insier theft in their stores. They have considering investing in one of two alternatives, identified as Y and Z. Z is the higher first-cost alternative, and the incremental initial investment between the two is $22,000 and will exhibit a rate of return of 12% per year. Z requires an investment of $88,000. They expect a rate of return on the $88,000 investment of 49 percent. Answer the following questions; (a) what is the size of the investment required in Y?, and, (b) what is the rate of return on Y? The size of the investment required in Y is $ The rate of return on Y is %.
Two alternative pumps are being compared. Pump A costs $5200, will save $1275 per year in operating and maintenance expenses, and is expected to last for 6 years. Pump B costs $6000, will save $1550 per year, and is also expected to last for 6 years. If the cost of capital is 12%, which has the better discounted payback period?
Amphenol manufactures motor power connectors and is considering upgrading the production equipment to reduce costs over a 6-year planning horizon. The company can invest $80,000 now (year 0), 1 year from now, or 2 years from now. Depending on when the investment is made, the savings will vary. The savings estimates are $25,000, $26,000, and $29,000 per year for investing now, year 1, and year 2, respectively. If the company’s MARR is 20% per year, use an FW analysis to determine if the timing of the investment will return at least 20% per year.
Elijah Enterprises will need to upgrade the computer system in 6 years. They anticipate the upgrade to cost $95,300. If the discount rate is 15%, what will be the required yearly investment needed to obtain the money for the upgrade?Round your (1+R)^n value to 2 decimal places and use that number for your final amount required rounded to the nearest dollar. Future Value / (1+R)^n = Amount Required / = What would be required if the discount rate was 8%? Future Value / (1+R)^n = Amount Required / =
Master Lock is evaluating whether to replace an older laser engraving machine to inscribe logos with a new machine. – The initial investment to acquire the machine is $380,000. – The machine has an expected useful life of 5 years. – The new machine would generates annual cost savings of $100,0000 (cash flows) one each of the five years. – The discount rate (or required rate of return) is 8%. • What’s the NPV (assume no taxes or inflation)?

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