Grumpy Publishing is considering the purchase of a used printing press costing $84,200. The printing press would generate a net cash inflow of $37.422 a year for 3 years. At the end of 3 years he press would have no salvage value. The company's cost of capital is 10 percent. The company uses straight-line depreciation. The investments internal rate of return (rounded to the nearest percent) is: 16 percent O 14 percent O 12 percent O 10 percent

Grumpy Publishing is considering the purchase of a used printing press costing $84,200. The printing press would generate a net cash inflow of $37.422 a year for 3 years. At the end of 3 years he press would have no salvage value. The company's cost of capital is 10 percent. The company uses straight-line depreciation. The investments internal rate of return (rounded to the nearest percent) is: 16 percent O 14 percent O 12 percent O 10 percent

Name: Grumpy Publishing is considering the purchase of a used printing pres
Uploaded: 2024-03-20T06:50:59.000Z
Channel: Bartleby
Description: Grumpy Publishing is considering the purchase of a used printing press costing $84,200. The printing press would generate anet cash inflow of $37,422 a year for 3 years. At the end of 3 years he press would have no salvage value. The company's costo

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 5PA: Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated...

See similar textbooks

Similar questions

Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
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.
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 NPV method (Note: Please round up the result of each calculation of PV to 2 decimal places only for simplification)
Fargo Cop, is considering the purchase of a new piece of equipment. The equipment costs $51,400 and will have a salvage value of $6,400 after nine years. Using the new piece of equipment will increase Fargo's annual cash flows by $7,400. Fargo has a hurdle rate of 13%. a. How much is Fargo's annual depreciation on the equipment? DepreciaSon b. What is Fargo's projected annual increase in net income? Net Income c. What is the accounting rate of return for purchasing the new plece of equipment? (Round your answer to 2 decimal places.) Rate of Retum
Splash City is considering purchasing a water park in Atlanta, Georgia, for $1,870,000. The new facility will generate annual net cash inflows of $481,000 for eight years. Engineers estimate that the facility will remain useful for eight years and have no residual value. The company uses straight-line depreciation, and its stockholders demand an annual return of 10% on investments of this nature. Requirement 1. Compute the payback, the ARR, the NPV, the IRR, and the profitability index of this investment. First, determine the formula and calculate payback. (Round your answer to one decimal place, X.X.) Amount invested 1,870,000 Expected annual net cash inflow 481,000 $ Next, determine the formula and calculate the accounting rate of return (ARR). (Round the percentage to the nearest tenth percent, X.X%.) Average annual operating income Average amount invested 242250 Requirements 2. $ 1. Compute the payback, the ARR, the NPV, the IRR, and the profitability index of this investment.…
The management of Nixon Corporation is investigating purchasing equipment that would cost $556.000 and have a 7 year life with no salvage value. The equipment would allow an expansion of capacity that would increase sales revenues by $383,000 per year and cash operating expenses by $220,500 per year. (Ignore income taxes.) Requlred: Determine the simple rate of return on the investment. (Round your answer to 1 declmal ploce.) Simple rate of retum Type here to search < Prev 4 of 4 近。 DELL E2 Eゴ ( F4 F5 F7 23 24 いゴ F12 3. V 4. 5. 7.
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?
Bunnings Ltd is considering to investin one of the two following projects to buy a new equipment. Each equipment will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 8%. The cash flows of the projects are provided below. Equipment 1 Equipment 2 Cost $186,000 $195,000 Future Cash Flows Year 1 86 000 97 000 Year 2 93 000 84 000 Year 3 83 000 86 000 Year 4 75 000 75 000 Year 5 55 000 63 000 identify which option of equipment should the company accept based on discounted pay back method if the payback criterionis maximum 2 years?
Bunnings Ltd is considering to investin one of the two following projects to buy a new equipment. Each equipment will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 8%. The cash flows of the projects are provided below. Equipment 1 Equipment 2 Cost $186,000 $195,000 Future Cash Flows Year 1 86 000 97 000 Year 2 93 000 84 000 Year 3 83 000 86 000 Year 4 75 000 75 000 Year 5 55 000 63 000 Required: a)Identify which option of equipment should the company accept based on Profitability Index? b)Identify which option of equipment should the company accept based on discounted pay back method if the payback criterionis maximum 2 years?
Galindo Long-Haul, Inc., is considering the purchase of a tractor-trailer that would cost $178,848, would have a useful life of 8 years, and would have no salvage value. The tractor- trailer would be used in the company's hauling business, resulting in additional net cash inflows of $36,000 per year. The internal rate of return on the investment in the tractor-trailer is closest to: A. 12% B. 10% C. 13% D. 15%
Big Bang Ltd is considering to invest in one of the two following projects to buy a new equipment. Each equipment will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 8%. 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 Big Bang’s net income in current year is $450,000. The company maintains a capital structure of 55% in equity funding and 45% in debt funding. Required: 1) Identify which option of equipment should the company accept based on NPV method. (Note: Please round up the result of each calculation of PV to 2 decimal places only for simplification) 2) Identify which option of equipment should the company accept based on Profitability Index method. 3) Which equipment option should the company finally…