Need helppp Aerotron Electronics is considering purchasing a water filtration system to assist in circuit board manufacturing. The system costs$40,000. It has an expected life of 7 years, at which time its salvage value will be $7,500. Operating and maintenance expenses areestimated to be $2,000 per year. If the filtration system is not purchased, Aerotron Electronics will have to pay Bay City $12,000 peryear for water purification. If the system is purchased, no water purification from Bay City will be needed. Aerotron Electronics mustborrow half of the purchase price, but they cannot start repaying the loan for 2 years. The bank has agreed to three equal annualpayments, with the first payment due at the end of year 2. The loan interest rate is 8% compounded annually. Aerotron Electronics'MARR is 10% compounded annually.Click here to access the TVM Factor Table CalculatorPart aWhat is this investment's external rate of return?%Carry all interim calculations to 5 decimal places and then round your final answer to 1 decimal place. The tolerance is ±0.2.Save for LaterAttempts: 0 of 4 used Submit AnswerPart bThe parts of this question must be completed in order. This part will be available when you complete the part above.

An individual or a business makes investments in currency, mutual funds, and other assets to grow…

Answered: investment's external rate of return

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 10P

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Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.
Newmarge Products Inc. is evaluating a new design for one of its manufacturing processes. The new design will eliminate the production of a toxic solid residue. The initial cost of the system is estimated at 860,000 and includes computerized equipment, software, and installation. There is no expected salvage value. The new system has a useful life of 8 years and is projected to produce cash operating savings of 225,000 per year over the old system (reducing labor costs and costs of processing and disposing of toxic waste). The cost of capital is 16%. Required: 1. Compute the NPV of the new system. 2. One year after implementation, the internal audit staff noted the following about the new system: (1) the cost of acquiring the system was 60,000 more than expected due to higher installation costs, and (2) the annual cost savings were 20,000 less than expected because more labor cost was needed than anticipated. Using the changes in expected costs and benefits, compute the NPV as if this information had been available one year ago. Did the company make the right decision? 3. CONCEPTUAL CONNECTION Upon reporting the results mentioned in the postaudit, the marketing manager responded in a memo to the internal audit department indicating that cash inflows also had increased by a net of 60,000 per year because of increased purchases by environmentally sensitive customers. Describe the effect that this has on the analysis in Requirement 2. 4. CONCEPTUAL CONNECTION Why is a postaudit beneficial to a firm?
After discovering a new gold vein in the Colorado mountains, CTC Mining Corporation must decide whether to go ahead and develop the deposit. The most cost-effective method of mining gold is sulfuric acid extraction, a process that could result in environmental damage. Before proceeding with the extraction, CTC must spend 900,000 for new mining equipment and pay 165,000 for its installation. The mined gold will net the firm an estimated 350,000 each year for the 5-year life of the vein. CTCs cost of capital is 14%. For the purposes of this problem, assume that the cash inflows occur at the end of the year. a. What are the projects NPV and IRR? b. Should this project be undertaken if environmental impacts were not a consideration? c. How should environmental effects be considered when evaluating this or any other project? How might these concepts affect the decision in part b?
Alexander Industries is considering purchasing an insurance policy for its new office building in St. Louis, Missouri. The policy has an annual cost of $10,000. If Alexander Industries doesn’t purchase the insurance and minor fire damage occurs, a cost of $100,000 is anticipated; the cost if major or total destruction occurs is $200,000. The costs, including the state-of-nature probabilities, are as follows: Using the expected value approach, what decision do you recommend? What lottery would you use to assess utilities? (Note: Because the data are costs, the best payoff is $0.) Assume that you found the following indifference probabilities for the lottery defined in part (b). What decision would you recommend? Do you favor using expected value or expected utility for this decision problem? Why?
Aerotron Electronics is considering the purchase of a water filtration system to assist in circuit board manufacturing. The system costs $220,000. It has an expected life of 7 years at which time its salvage value will be $7,500. Operating and maintenance expenses are estimated to be $13,000 per year. If the filtration system is not purchased, Aerotron Electronics will have to pay Bay City $42,000 per year for water purification. If the system is purchased, no water purification from Bay City will be needed. Aerotron Electronics must borrow 1/2 of the purchase price, but they cannot start repaying the loan for 2 years. The bank has agreed to 3 equal annual payments, with the 1st payment due at the end of year 2. The loan interest rate is 8% compounded annually. Aerotron Electronics' MARR is 10% compounded annually. Part a What is the annual worth of this investment? $
Dell is considering replacing one of its material handling systems. It has an annual O&M cost of $48,000, a remaining operational life of 8 years, and an estimated salvage value of $6,000 at that time. A new system can be purchased for $175,000. It will be worth $50,000 in 8 years, and it will have annual O&M costs of only $17,000 per year due to new technology. If the new system is purchased, the old system will be traded in for $55,000, even though the old system can be sold for only $45,000 on the open market. Leasing a new system will cost $31,000 per year, payable at the beginning of the year, plus operating costs of $15,000 per year payable at the end of the year. If the new system is leased, the existing material handling system will be sold for its market value of $45,000. Use a planning horizon of 8 years, an annual worth analysis, and MARR of 15% to decide which material handling system to recommend: (i) keep existing, (ii) trade in existing and purchase new, or (iii)…
Apricot Computers is considering replacing its material handling system and either purchasing or leasing a new system. The old system has an annual operating and maintenance cost of $31,000, a remaining life of 8 years, and an estimated salvage value of $4,800 at that time. A new system can be purchased for $284,000; it will be worth $24,000 in 8 years; and it will have annual operating and maintenance costs of $16,000/year. If the new system is purchased, the old system can be traded in for $22,000. Leasing a new system will cost $25,000/year, payable at the beginning of the year, plus operating costs of $7,400/year, payable at the end of the year. If the new system is leased, the old system will be sold for $9,600. MARR is 16%. Compare the annual worths of keeping the old system, buying a new system, and leasing a new system based upon a planning horizon of 8 years. Click here to access the TVM Factor Table Calculator For calculation purposes, use 5 decimal places as displayed in the…
Denny Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine would cost $180,000 and would have a twelve-year useful life. Unfortunately, the new machine would have no salvage value. The new machine would cost $26, 000 per year to operate and maintain, but would save $58,000 per year in labor and other costs. The old machine can be sold now for scrap for $18,000. The simple rate of return on the new machine is closest to (Ignore income taxes.):
Diemia Hospital has been considering the purchase of a new xray machine. The existing machine is operable for five more years and will have a zero disposal price. If the machine is disposed now, it may be sold for $150,000. The new machine will cost $640,000 and an additional cash investment in working capital of $75,000 will be required. The new machine will reduce the average amount of time required to take the xrays and will allow an additional amount of business to be done at the hospital. The investment is expected to net $50,000 in additional cash inflows during the year of acquisition and $160,000 each additional year of use. The new machine has a five year life, and zero disposal value. These cash flows will generally occur throughout the year and are recognized at the end of each year. Income taxes are not considered in this problem. The working capital investment will not be recovered at the end of the asset's life. What is the net present value of the investment,…
The Department of Public Works is trying to decide between "patching" a road or repaving it completely. If the "patching" system is used, approximately 300 cubic meters of material will be required, at $25 per cubic meter (on site). Additionally, the berms will need to be re-constructed, which will cost $3000. The annual cost of routine maintenance of the "patched" road would be $4000. Repairs would only last 2 years, after which they would have to be re-made. The other alternative is for the department to repave the entire road, which would cost $65,000. This area would last 10 years if the road were maintained at a cost of $15000 per year, starting in 4 years. Regardless of which alternative is chosen, the road will be rebuilt within 10 years. If the interest rate is 13% per year, which alternative should the department select, based on present value?
The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $55,000. The machine would replace an old piece of equipment that costs $14,000 per year to operate. The new machine would cost $6,000 per year to operate. The old machine currently in use is fully depreciated and could be sold now for a salvage value of $21,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.) ces 1. Depreciation expense 2. Incremental net operating income 3 Initial investment…
The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $59,000. The machine would replace an old piece of equipment that costs $15,000 per year to operate. The new machine would cost $7,000 per year to operate. The old machine currently in use is fully depreciated and could be sold now for a salvage value of $25,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.)

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