You have been asked to decide about oneof two mutually exclusive alternatives (A &B). The following table gives the initial costs,annual savings in labor costs, and theexpected life of two pieces of equipment.Plot PW vs. i for each equipment on thesame graph and identify the AAIRR fromthe graph (i for the intersection). Then,highlight the corresponding value of i inyellow in your spreadsheet.High-cost Equipment (A)Low-cost Equipment (B)Initial Cost$137,910$100,000Savings in Labor Costs$42,000 / year$32,000 / yearLife5 years5 years

Internal rate of return:The Internal Rate of Return (IRR) is a critical metric used in finance and…

Answered: Initial Cost Savings in Labor Costs…

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

See similar textbooks

Similar questions

ENGINEERING ECONOMY A project requires an initial investment of BD 75,000, has a salvage value of BD 15,000 after 4 years, incurs annual expenses of BD 5,000. Using MARR of 10%, determine the CR of this project over the four years. Show your full steps with your final table.
Average Rate of Return—Cost Savings Midwest Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $92,000 with a $8,000 residual value and a ten-year life. The equipment will replace one employee who has an average wage of $22,850 per year. In addition, the equipment will have operating and energy costs of $4,450 per year. Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment. If required, round to the nearest whole percent. %
Calculating EAC You are evaluating two different silicon wafer milling machines. The Techron I costs $265,000, has a 3-year life, and has pretax operating costs of $41,000 per year. The Techron II costs $330,000, has a 5-year life, and has pretax operating costs of $52,000 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $25,000. If your tax rate is 21 percent and your discount rate is 9 percent, compute the EAC for both machines. Which do you prefer? Why?
Calculate the profitability of the following proposal using Return an investment method Proposal I Automatic machine Cost 420000 Estimated life 6.5 years Estimated sales p.a 175000 Cost : Material 60000 Labor 22000 Variable overheads 14000 O a. 4.62% O b. 16.53% O c. 3.42% O d. All the options are wrong
MACHINE A MACHINE B INITIAL COST R100 000 R110 000 EXPECTED ECONOMIC LIFE 5 YEARS 5 YEARS EXPECTED DISPOSAL/RESIDUAL VALUE R10 000 EXPECTED NET CASH INFLOWS R R END OF: YEAR 1 34 000 33 000 YEAR 2 27 000 33 000 YEAR 3 32 000 33 000 YEAR 4 30 000 33 000 YEAR 5 26 000 33 000 DEPRECIATION PER YEAR 18 000 22 000 COMPANY ESTIMATES COST CAPITAL = 14% 3)Calculate the net present value of each machine
Year Unit Sales 1 73,000 2 86,000 3 105,000 4 97,000 5 67,000 Production of the implants will require $1,500,000 in networking capital to start. It is expected that networking capital requirements are not changing over the life of the project. Total fixed costs are $3,300,000 per year,variable production costs are $225 per unit, and the units are priced at $375 each. The equipment needed to begin production has an installed cost of$16,500,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as a seven-year MACRS property. In five years, this equipment can be sold for about 20 percent of the acquisition cost. The tax rate is 21 percent and the required returns is 18 percent. Based on these preliminary estimates, a) What is theNPV of the project? b) What is the IRR? USE EXCEL AND SHOW WORKING
The following annual costs are associated with three new extruder machines being considered for use in a Styrofoam cup plant: Data Useful Life, Years First Cost Salvage Value Annual Benefit M&O M&O Gradient X 17 $2,090,000 $87,000 $396,000 $56,000 $9,000 X-TRUD 13 $2,610,000 $93,000 $534,000 $60,000 $11,000 SUPR-X 11 $2,430,000 $119,000 $638,000 $53,000 $13,000 The company's interest rate (MARR) is 21%. Which extruder should the Styrofoam company choose? Use Annual Cash Flow Analysis and provide the right reason. Choosing SUPR-X is best because it has the lowest M&O cost in yr1 Choosing SUPR-X is best because it has the highest Annual Benefit Choosing SUPR-X will maximize the EUAB-EAUC; its value is $-127,486 higher than X and $15,650 higher than X-TRUD. Choosing SUPR-X will maximize the EUAB-EAUC; its value is $117,514 higher than X and $126,650 higher than X-TRUD.
If variable manufacturing cost £5 per unit Fixed costs £10,000 avoidable Fixed costs £20,000 committed Budgeted production 5,000 units The maximum buy in price is equal to: A £5 B £6 C £7 D £8
Differential Analysis Involving Opportunity Costs On July 1, Matrix Stores Inc. is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $149,800 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled: Cost of store equipment $149,800 Life of store equipment 16 years Estimated residual value of store equipment $17,800 Yearly costs to operate the warehouse, excluding depreciation of equipment $55,600 Yearly expected revenues—years 1-8 74,600 Yearly expected revenues—years 9-16 70,200 Required: 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.…
Average Rate of Return—Cost Savings Maui Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $140,000 with a $12,000 residual value and a ten-year life. The equipment will replace one employee who has an average wage of $29,460 per year. In addition, the equipment will have operating and energy costs of $6,780 per year. Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment. If required, round to the nearest whole percent.fill in the blank 1 %
föllowing Cost Factor Site B 170,000$ Site A Price of land 100,000S Monthly cost of delivering materials S 10,000 $ 7,000 Cost of equipment setup $ 12,000 $ 9,000 Cost of utilities per month $ 1,500 1,100 For site A, an extra $ 60/ day is needed for additional site guards. a- Which site should the contractor select? b- When do the costs of two sites are equals (After how many months of work the costs are similar)?
Average Rate of Return The following data are accumulated by McDermott Motors Inc. evaluating two competing capital investment proposals: Testing Equipment Diagnostic Software Amount of investment $44,000 $40,000 Useful life 4 years 9 years Estimated residual value $0 $0 Estimated total income over the useful life $6,600 $22,500 Determine the expected average rate of return for each proposal. If required, round to one decimal place. Testing Equipment 3.75 Х % Diagnostic Software 6.25 X % Feedback Check My Work Divide the estimated average annual income by the average investment. Initialcost plus residual value divided by two equals average inve Sign out

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

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

SEE MORE TEXTBOOKS

Initial Cost Savings in Labor Costs Life High-cost Equipment (A) $137,910 $42,000/year 5 years Low-cost Equipment (B) $100,000 $32,000/year 5 years