QUESTION 41 pointsSave AnswerIn an effort to capture the large jet market, Airbus invested $13 billion developing its A380, which is capableof carrying 800 passengers.The plane had a list price of $280 million. In discussing the plane, Airbus stated that the company wouldbreak even when 249 A380s were sold.Airbus promised its shareholders a 20 percent rate of return on the investment. If sales of the planecontinue in perpetuity, how many planes must the company sell per year to deliver on this promise?O1.50.20O2.49.80O 3. 25.2O 4.68.8

Breakeven point is a point where there is no profit or no loss. Therefore, this is the point where…

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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 34 Advanced Products is considering the purchase of a computer-aided manufacturing system that requires an initial investment of $1,750,000 and is expected to provide an increase in net income of $200,000 and average annual cash benefits and savings of $250,000 each year for the next 10 years. Their current cost of capital is 10%. Following are selected factors from tables for 10 years at 10%: FV of $1 FVOA PV of $1 PVOA 2.59374 15.93742 0.38554 6.14457 Required: Compute the net present value of the investment $0 $750,000 $(213,857.50) $1,000,000
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A3 8av You are considering a new product launch. The project will cost $680,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 100 units per year, price per unit will be $19,000, variable cost per unit will be $14,000, and fixed costs will be $150,000 per year. The required return on the project is 15%, and the relevant tax rate is 35%. Ignore the half-year rule for accounting for depreciation. a. Calculate the following six numbers for this project. Round your answers to two decimal places. (v) Internal Rate of Return (IRR in %)
Question 6 "Fulda Springs Water Ltd." has identified two different bottling lines that would both suit to bottle their new table water called "Fulda's Best". Machine B allows bottling the water in a premium bottle whereas machine A can only handle standard bottles. The company's cost of capital are 8% p.a.. They expect to sell 150.000 bottles every year. The water can be sold at a higher price if it is bottled in the premium bottle. The controller has set up the following table with data that is needed to make an investment decision. Machine A Machine B sales price for 1 bottle of "Fulda's Best" 0,80 € 0,90 € expected useful life of the machine (years) What is the best choice according to the cost comparison calculation, • profit comparison calculation, • Profitability comparison? When will the machine pay for itself? 5 4 purchasing price for the machine 100.000,00 € 180.000,00 € residual value of the machine € 20.000,00 € annual fixed cost 20.000,00 € 5.000,00 € variable cost (per…
Exercise 10-12A (Algo) Determining the payback period LO 10-4 Fanning Airline Company is considering expanding its territory. The company has the opportunity to purchase one of two different used airplanes. The first airplane is expected to cost $14,800,000; It will enable the company to Increase its annual cash Inflow by $3,700,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane costs $34,800,000; It will enable the company to increase annual cash flow by $5,800,000 per year. This plane has an eight-year useful life and a zero salvage value. Required *1. Determine the payback period for each Investment alternative. a2. Identify the alternative Fanning should accept if the decision is based on the payback approach. Note: Round your answers to 1 decimal place. a-1. Alternative 1 (First plane) a-1. Alternative 2 (Second plane) a-2. Fanning should accept Payback Period years years
5
Question 2 ElectroMotion Corp is an electric vehicle manufacturer that produces fuel-cell powered passenger cars and trucks. The company has developed a new production line machine that has considerably improved the efficiency of the firm's existing manufacturing process. The cost of buying the new machine is £20,000 irrespective from when you buy it, and its economic useful life is 3 years. The existing production line machine will last at most 2 more years. The annual operating costs of the two machines are given below. Old machine New machine Annual operating cost (£) Year 2 15,000 6,000 Year 1 10,000 4,000 The opportunity cost of capital is 10%. Year 3 N/A 8,000 a) When should the company replace the existing machine with a new one? b) Interpret your result in question (a).
Exercise 14-3 (Algo) Internal Rate of Return [LO14-3] Wendell’s Donut Shoppe is investigating the purchase of a new $34,600 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $6,500 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 2,500 dozen more donuts each year. The company realizes a contribution margin of $1.60 per dozen donuts sold. The new machine would have a six-year useful life. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. What would be the total annual cash inflows associated with the new machine for capital budgeting purposes? 2. What discount factor should be used to compute the new machine’s internal rate of return? (Round your answers to 3 decimal places.) 3. What is the new machine’s internal rate of return? (Round your final answer…
3 #12 Palmer Corporation is considering the purchase of a new plece of equipment. The cost savings from the equipment would result in an annual increase in net operating income of $100,000. The equipment will have an initial cost of $400,000 and a 7-year useful life. If the salvage value of the equipment is estimated to be $75,000, what is the accounting rate of return? Multiple Choice 14.28% 25.00% 4211% 147.37% Q
part c, d
K Sunk costs and opportunity costs Masters Golf Products, Inc., spent 4 years and $1,140,000 to develop its new line of club heads to replace a line that is beco manufacturing them, the company will have to invest $1,850,000 in new equipment. The new clubs are expected to generate an increase in operating cash inflows 11 years. The company has determined that the existing line could be sold to a competitor for $253,000. a. How should the $1,140,000 in development costs be classified? b. How should the $253,000 sale price for the existing line be classified? c. What are all the relevant cash flows for years 0 thru 11? (Note: Assume that all of these numbers are net of taxes.) a. How should the $1,140,000 in development costs be classified? (Select the best answer below.) OA. The $1,140,000 development costs should be considered part of the decision to go ahead with the new production. This money has already been spent as OB. The $1,140,000 development costs should not be considered part…
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