I have attacheed some of the problem but cant fingure the 2nd part pizza Palace has five brick ovens that need attention and is considering two options. Both options will cost around $1,000,000 (initial investment). Option 1 is to refurbish its current brick-ovens. If refurbished, Pizza Palace expects the ovens to last another 6 years. The average annual income from refurbishing the ovens is $183,333.33. Refurbishing the ovens will have no salvage value. Option 2 is to replace the current ovens. New ovens would last 8 years and have no salvage value. The average annual income from buying a new oven is $143,750. Pizza Palace expects the following net cash inflows from the two options: Year Refurbish Current Ovens Purchase New Ovens 1 $600,000 $800,000 2 $500,000 $600,000 3 $400,000 $300,000 4 $300,000 $200,000 5 $200,000 $100,000 6 $100,000 $50,000 7 $50,000 8 $50,000 Pizza Palace uses straight-line depreciation and requires an annual return of 10% Refurbish Current Machine Net Cash Outflows Refurbish Current Machine Net Cash Inflows Refurbish Current Machine Year Net Cash Flows per Year Cumulative Net Cash Flows 0 0 0 **Enter the year 0 net cash flow as a negative 1 600000 600000 2 500000 1100000 3 400000 1500000 4 300000 1800000 5 200000 2000000 6 100000 2100000 7 50000 2150000 8 50000 2200000 NPV $1,670,397.21 3870397.206 Total Full Year(s) Cumulative Net Cash Flow in Year 2 Total Cash Inflow Year 2 Payback for Refurbishing the current machine = 1 + 400000 ÷ 500000 #### 1.8 Years
I have attacheed some of the problem but cant fingure the 2nd part pizza Palace has five brick ovens that need attention and is considering two options. Both options will cost around $1,000,000 (initial investment). Option 1 is to refurbish its current brick-ovens. If refurbished, Pizza Palace expects the ovens to last another 6 years. The average annual income from refurbishing the ovens is $183,333.33. Refurbishing the ovens will have no salvage value. Option 2 is to replace the current ovens. New ovens would last 8 years and have no salvage value. The average annual income from buying a new oven is $143,750. Pizza Palace expects the following net cash inflows from the two options: Year Refurbish Current Ovens Purchase New Ovens 1 $600,000 $800,000 2 $500,000 $600,000 3 $400,000 $300,000 4 $300,000 $200,000 5 $200,000 $100,000 6 $100,000 $50,000 7 $50,000 8 $50,000 Pizza Palace uses straight-line depreciation and requires an annual return of 10% Refurbish Current Machine Net Cash Outflows Refurbish Current Machine Net Cash Inflows Refurbish Current Machine Year Net Cash Flows per Year Cumulative Net Cash Flows 0 0 0 **Enter the year 0 net cash flow as a negative 1 600000 600000 2 500000 1100000 3 400000 1500000 4 300000 1800000 5 200000 2000000 6 100000 2100000 7 50000 2150000 8 50000 2200000 NPV $1,670,397.21 3870397.206 Total Full Year(s) Cumulative Net Cash Flow in Year 2 Total Cash Inflow Year 2 Payback for Refurbishing the current machine = 1 + 400000 ÷ 500000 #### 1.8 Years
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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I have attacheed some of the problem but cant fingure the 2nd part
pizza Palace has five brick ovens that need attention and is considering two options. Both options will cost around $1,000,000 (initial investment). Option 1 is to refurbish its current brick-ovens. If refurbished, Pizza Palace expects the ovens to last another 6 years. The average annual income from refurbishing the ovens is $183,333.33. Refurbishing the ovens will have no salvage value. Option 2 is to replace the current ovens. New ovens would last 8 years and have no salvage value. The average annual income from buying a new oven is $143,750. Pizza Palace expects the following net cash inflows from the two options:
|
Year |
Refurbish Current Ovens |
Purchase New Ovens |
|
1 |
$600,000 |
$800,000 |
|
2 |
$500,000 |
$600,000 |
|
3 |
$400,000 |
$300,000 |
|
4 |
$300,000 |
$200,000 |
|
5 |
$200,000 |
$100,000 |
|
6 |
$100,000 |
$50,000 |
|
7 |
|
$50,000 |
|
8 |
|
$50,000 |
Pizza Palace uses straight-line
| Refurbish Current Machine | |||||||||
| Net |
Net Cash Inflows Refurbish Current Machine | ||||||||
| Year | Net Cash Flows per Year | Cumulative Net Cash Flows | |||||||
| 0 | 0 | 0 | **Enter the year 0 net cash flow as a negative | ||||||
| 1 | 600000 | 600000 | |||||||
| 2 | 500000 | 1100000 | |||||||
| 3 | 400000 | 1500000 | |||||||
| 4 | 300000 | 1800000 | |||||||
| 5 | 200000 | 2000000 | |||||||
| 6 | 100000 | 2100000 | |||||||
| 7 | 50000 | 2150000 | |||||||
| 8 | 50000 | 2200000 | |||||||
| $1,670,397.21 | 3870397.206 | ||||||||
| Total Full Year(s) | Cumulative Net Cash Flow in Year 2 | Total |
|||||||
| Payback for Refurbishing the current machine | = | 1 | + | 400000 | ÷ | 500000 | #### | 1.8 | Years |
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