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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Similar questions

You are considering whether to replace an existing flow meter. The existing meter can be sold now for $50 or it can be sold in 1 year for $10. It costs $30 per year to operate and maintain. A new meter costs $400 and has a 10-year life. It could be sold for $40 at the end of its life. The new meter costs $14 per year to operate and maintain. What do you recommend if the cost of capital is 12% (Use the EAC method to identify which of the three decisions is most viable)?
Your friend in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes one year to manufacture $800. However, once built, the machine will last forever and will require no maintenance. The machine can be built immediately, but it will cost $8,000 to build. Your friend wants to know if he should invest the money to construct it. If the interest rate is 4.0% per year, what should your friend do? The NPV of the machine is $ What should your friend do? (Round to the nearest cent.) (Select the best choice below.) O A. Accept the machine because the NPV is equal to or greater than $0. O B. Reject the machine because the NPV is less than $0. O C. Reject the machine because the NPV is equal to or greater than $0. O D. Accept the machine because the NPV is equal to or less than $0. ..
You want to start an organic garlic farm. The farm costs $210,000, to be paid in full immediately. Year 1 cash inflow will be $25,000, after which the inflows are expected to grow at a 5% annual rate until the end of year 5 when you anticipate selling the farm for $260,000 (at the end of year 5 you get both the cash inflow from operations and from selling the farm). What is the IRR of your garlic farm investment? Round to the tenth of a percent (e.g. 5.6%=5.6). [Hint: You'll want to solve this in Excel using the IRR function or Goal Seek. Make sure the IRR cell is set to show decimals.]
Ignore income taxes in this problem.) Your Company is considering buying a new machine that would generate annual cost savings would of $14,125. The internal rate of return is 12%. The machine has a projected life of 10 years. What is the maximum you should pay for the machine? Round to the nearest dollar.
You have just been offered a contract worth $1.14 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 11.6%. 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 11.6% annual return is $______ Million. (Round to two decimal places)
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3) New Project Investment| Wally loves your analysis. He has now asked you to evaluate potential new project investments. Both projects aim to make widgets. Widgets sell for $10 each. Project A will produce 4,500 units in the first year, 6,500 units in the second and third years and a whopping 44,000 units in the fourth year. Project A requires an investment of 7 machines each costing $50,000. Project B will produce 2,400 units in the first year, 2,200 units in the second year, 1,950 units in the third year and 1,460 units in the fourth year. Project B requires an initial investment of 1 machine worth $50,000. Wally has said that to make the analysis easier - you need not calculate depreciation on the machine, the tax shelter benefit or the residual value of the machine at the end of production. Wally just said I want you understand the cash flows from the information provided above. (a) Calculate the net present value for each of Project A and Project B, assuming a 15% cost of…
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Please answer fast i give you upvote.
You have just been offered a contract worth $1.15 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 12.1%. 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 12.1% annual return is $ million. (Round to two decimal places.)
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
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