If the firm's cost of capital is 10%;- 1) Draw the cash flow forecast. 2) Evaluate the proposed investment using the following techniques; a) Payback b) Return on Investment
If the firm's cost of capital is 10%;- 1) Draw the cash flow forecast. 2) Evaluate the proposed investment using the following techniques; a) Payback b) Return on Investment
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
Related questions
Question
Transcribed Image Text:Question 1
Alpha Engineering Ltd. is considering the purchase of a new cnc.
machine tool to replace four old capstan lathes. The new machine will
cost £150,000 and is expected to last five years, after which it is expected
to realise a scrap value of £10,000.
Additional dedicated tooling for the new machine will cost a further
£25,000. A maintenance contract will be taken out to cover the machine
at a cost of £10,000 per annum. The maintenance of the additional
dedicated tooling will be done in-house at an estimated cost of £5,000 per
year. A cnc. programmer/operator will be recruited at a cost of £20,000
per year.
The benefits expected from the new cnc. machine will include the scrap
value of the old machines, which is expected to be £5,000 each. The
wages of four capstan operators of £17,000 per annum each plus the cost
of a maintenance fitter at £18,000 per annum can also be considered as a
benefit. A further saving of £10,000 per year in reduced scrap/rework
costs should also be realised.
If the firm's cost of capital is 10%;-
1) Draw the cash flow forecast.
2) Evaluate the proposed investment using the following techniques;
a) Payback
b) Return on Investment
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education