John Deere is an American manufacturer of agricultural, construction, and forestry machinery. The company is considering the purchase of a new piece ofequipment. The cost savings from the equipment would result in an annual increase in cash flow of $102,400. The equipment will have an initial cost of$403,600 and have a 5-year life. The salvage value of the equipment is estimated to be $77,400. If the discount rate is 10%, what is the internal rate ofreturn? (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor from the PV tables.Round your final answer to the nearest dollar amount.)Multiple ChoiceBetween 12% and 14%Between 8% and 10%Between 10% and 12%Between 6% and 8%

The objective of this question is to calculate the internal rate of return (IRR) for the investment…

Answered: John Deere is an American manufacturer…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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A firm is considering an investment in a new machine with a price of $15.9 million to replace its existing machine. The current machine has a book value of $5.7 million and a market value of $4.4 million. The new machine is expected to have a 4-year life, and the old machine has four years left in which it can be used. If the firm replaces the old machine with the new machine, it expects to save $6.45 million in operating costs each year over the next four years. Both machines will have no salvage value in four years. If the firm purchases the new machine, it will also need an investment of $280,000 in net working capital. The required return on the investment is 11 percent and the tax rate is 23 percent. The company uses straight-line depreciation. a)- What is the NPV of the decision to purchase the new machine? b) What is the IRR of the decision to purchase the new machine? c) WHat is the NPV of the decison to keep using the old machine? d) What is the IRR of the decison to keep…
This alternative involves purchasing new aquaculture equipment for $500,000, with a forecasted useful life of 10 years, to replace old equipment that could be disposed of at an estimated salvage value of $60,000. If GBEI acquires the new equipment, it could take on a bigger service area that was not previously feasible, thus leading to an annual increase in sales of $200,000. With the improvements in technology built into the equipment, GBEI’s annual operating expenses would be reduced by $100,000. Operation of the new equipment would require GBEI to maintain inventory levels $100,000 higher than usual over the life of the project. The new equipment could be sold at the end of its useful life for $40,000. Assume straight line depreciation. Assume gross margin on incremental revenues is 60%. The cost of capital for this investment is 11.65%. 1. Calculate the NPV, Payback Period, and Profitability Index of the purchase of the new aquaculture equipment.
A firm is considering purchasing equipment that will reduce cost by P400,000. The equipment costs P300,000 and has a salvage value of P50,000 and a life of 7 years. The annual maintenance cost is P6,000. While not in use by the firm, the equipment can be rented to others to generate an income of P10,000 per year. If money can be invested for an 8 per cent return, is the firm justified in buying the equipment?
The Candida Company wants to purchase a new machine for its factory operations at a cost of $475,000. The investment is expected to generate $175,000 in annual cash flows for a period of four years. The required rate of return is 14%. The old machine can be sold for $25,000. The machine is expected to have zero value at the end of the four-year period. Required: What is the net present value of the investment? Would the company want to purchase the new machine? Income taxes are not considered. a. $509,775; yes b. $34,775; no c. $59,775; yes d. $163,375; no
McKim Company is considering acquiring a manufacturing plant. The purchase price is $1,000,000. The owners believe the plant will generate net cash inflows of $314,000 annually. It will have to be replaced in 6 years. Use the payback method to determine whether McKim Company should purchase this plant. Round to one decimal place. Select the formula, then enter the amounts to calculate the payback period for the plant. (Round payback to one decimal place, X.X.) = Payback years
The Oviedo Company is considering the purchase of a new machine to replace an obsolete one. The machine being used for the operation has a book value and a market value of zero. However, the machine is in good working order and will last at least another 10 years. The proposed replacement machine will perform the operation so much more efficiently that Oviedo's engineers estimate that it will produce after-tax cash flows (labor savings) of $6,000 per year. The after-tax cost of the new machine is $30,000, and its economic life is estimated to be 10 years. It has zero salvage value. The firm's WACC is 10%, and its marginal tax rate is 25%. Should Oviedo buy the new machine? Oviedo (should or Should not) purchase the new machine.
Munch N' Crunch Snack Company is considering two possible investments: a delivery truck or a bagging machine. The delivery truck would cost $43,056 and could be used to deliver an additional 95,000 bags of pretzels per year. Each bag of pretzels can be sold for a contribution margin of $0.45. The delivery truck operating expenses, excluding depreciation, are $1.35 per mile for 24,000 miles per year. The bagging machine would replace an old bagging machine, and its net investment cost would be $61,614. The new machine would require three fewer hours of direct labor per day. Direct labor is $18 per hour. There are 250 operating days in the year. Both the truck and the bagging machine are estimated to have 7-year lives. The minimum rate of return is 13%. However, Munch N' Crunch has funds to invest in only one of the projects. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 2 3 4 5 6 7 8 9 10 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360…
A firm is considering a 3yr project to improve its production efficiency. Buying a new machine for $375,000 is estimated to result in operating cash flow of $155,000. The after tax salvage value would be $42,000. The machine also requires an initial investment in working capital of $26,000. Given the discount rate is 9 percent, calculate the project's NPV.
Company xyz will buy a carpet loom. Its purchase price is 250000 TL, its scrap value is 25000, its economic life is 10 years, and its annual net cash inflow is 87000 TL. Since the capital cost of the company is %35. Would you recommend that this machine be purchased by the company?

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