Grady Corporation is considering the purchase of a new piece of equipment. The equipment costs $51,100 and will have a salvagevalue of $5,120 after 9 years. Using the new piece of equipment will increase Grady's annual net cash flows by $6,090. Grady's cost ofcapital is 15%. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1)Note: Use appropriate factor from the PV tables.Required:a. What is the present value of the increase in annual cash flows?b. What is the present value of the salvage value?c. What is the net present value of the equipment purchase?d. Based on financial factors, should Grady purchase the equipment?Complete this question by entering your answers in the tabs below.Required A Required B Required CRequired DWhat is the present value of the increase in annual cash flows?Note: Round your answer to the nearest whole dollar.Present ValueRequired B >

Find the present value of the increase in annual cash flows.Step 1: Identify the annual cash…

Answered: Grady Corporation is considering the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Homer Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net Income after tax of $169,650. The equipment will have an initial cost of $585,000 and have a 5-year life. If the salvage value of the equipment is estimated to be $25,000, what is the annual net cash flow? Multiple Choice $144,650 $57,650 $281650 $194,650
A corporation is considering purchasing a new plant asset. The asset will cost $30,000. The corporation requires a 10% return on similar investments. The corporation plans to use the asse for 4 years and then sell it for the salvage value. The estimated salvage value of the asset in 4 years is $5,000. The corporation estimates that if purchased the new asset will provide addition net cash flows of $9,000 each year for 4 years (assume the cash flows occur at the end of the year): Calculate the net present value (you must include the calculation in order to receive credit) Should the business purchase the asset?
Bunnings Ltd is considering to invest in one of the two following projects to buy a new equipment. Esch equipment will last 5 years and have no salvage value at the end. The company's required rate of retum for all investment projects is 89%. The cash flows of the projects are provided below. Equipment 1 Equipment 2 Cost $186,000 $195,000 Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 86 000 93 000 83 000 75 000 55 000 97 000 84 000 86 000 75 000 63 000 Required: a) Identify which option of equipment should the company accept based on Profitability Inde * b) Identify which option of equipment should the company accept based on discounted pay back method if the payback criterion is maximum 2 years?
(4). Gifted Heart Construction Company obtained a loan from Bay Area Bank at an interest rate of 10% to purchase an excavator for $550,000. The tires will be replaced at a cost of $80,000 and the engine would be refurbished at a cost of $50,000 in year 5. The salvage value of the excavator after 10 years of use in construction projects would be $75,000. (a). What is the annual cost of owning the excavator? (b). What is the future cost 6 years from now? IF
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ealthy Food Ltd is considering to invest in one of the two following projects to buy new machinery. Each option will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 7%. The cash flows of the projects are provided below. Machinery 1 Machinery 2 Cost $396,000 $415,000 Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 123,000 194,000 205,000 215,000 228,000 196, 000 204,000 212,000 217,000 233,000 Required: Identify which option of machinery should the company accept based on the simple payback period method if the firm maintains a policy that every investment project should recover the initial investment within 2 years.
Tanner Corporation is considering the acquisition of a new machine that is expected to produce annual savings in cash operating costs of $70,000 before income taxes. The machine costs $244,000, has a useful life of five years, and no salvage value. Tanner uses straight-line depreciation on all assets, is subject to a 30% income tax rate, and has an after-tax hurdle rate of 8 %. FV of $1 at FV of an ordinary annuity at PV of $1 at PV of an ordinary annuity at Yr .8% 8% 8% 8% 1 1.080 1.000 0.926 0.926 2 1.166 2.080 0.857 1.783 3 1.260 3.246 0.794 2.577 4 1.360 4.506 0.735 3.312 5 1.469 5.867 0.681 3.993 6 1.587 7.336 0.630 4.623 Required: If the machine's accounting rate of return on the initial investment is 6%. Compute the machine's net present value
A firm undertakes a five-year project that requires an initial capital investment of $125,000. The project is then expected to provide cash flow of $15,000 per year for the first two years, $55,000 in the third and fourth years, and $16,000 in the fifth year. The project has an end-of-life salvage value of $7,000.
2. A new electric power generation plant is expected to cost $42,000,000 to complete. The revenues generated by the new plant are expected to be $3,875,000 per year, while operational expenses are estimated to be $2,000,000 per year. The plant will last 40 years, and the electric authority uses a 3% interest rate. Determine if the plant will be able to recover its investment using the following methods: a. IRR (show your solution for interpolation; use 5 decimal places for the interpolation procedure) b. Payback period
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NOVA Company is considering a long-term investment project called STUDY. STUDY will require an investment of $125,190. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $79,000, and annual cash outflows would increase by $40,000. Compute the cash payback period. O 3.21 years O 1.23 years O 1.58 years O 4 years
Margaret has a project with a $30560 first cost that returns $4320 per year over its 10-year life. It has a salvage value of $3000 at the end of 10 years. If the MARR is 5 percent, what is the payback period of this project if cash flow is continuous?

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