Joy Co. is considering 2 projects, Alternative A and Alternative B, that it anticipates would increase the energy efficiency of the facility where it produces its rainbow-colored party supplies. Note that it may also choose to forgo any upgrades. Joy Co. plans to be in its current facility for another 5 years, at which point it will sell its remaining assets. • Alternative A costs $7,500 to install and will produce an estimated annual savings of $2,976. It does not have any salvage value. • Alternative B costs $22,000 to install and will save $5,700 annually. It has a salvage value of $9,500 at the end of its useful life. Compute the FW of each alternative, assuming a MARR of 14%. Click here to access the TVM Factor Table calculator. FW Alternative A $4 Alternative B %24 Carry all interim calculations to 5 decimal places and then round your final answers to a whole number. The tolerance is±10. Which of the alternatives should Joy Co. pursue? Neither Alternative B Media Alternative A

Joy Co. is considering 2 projects, Alternative A and Alternative B, that it anticipates would increase the energy efficiency of the facility where it produces its rainbow-colored party supplies. Note that it may also choose to forgo any upgrades. Joy Co. plans to be in its current facility for another 5 years, at which point it will sell its remaining assets. • Alternative A costs $7,500 to install and will produce an estimated annual savings of $2,976. It does not have any salvage value. • Alternative B costs $22,000 to install and will save $5,700 annually. It has a salvage value of $9,500 at the end of its useful life. Compute the FW of each alternative, assuming a MARR of 14%. Click here to access the TVM Factor Table calculator. FW Alternative A $4 Alternative B %24 Carry all interim calculations to 5 decimal places and then round your final answers to a whole number. The tolerance is±10. Which of the alternatives should Joy Co. pursue? Neither Alternative B Media Alternative A

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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Tanaka Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $401,000 is estimated to result in $147,000 in annual pretax cost savings. The press qualifies for 100 percent bonus depreciation and it will have a salvage value at the end of the project of $48,000. The press also requires an initial investment in spare parts inventory of $15,300, along with an additional $2,300 in inventory for each succeeding year of the project. The shop's tax rate is 23 percent and its discount rate is 10 percent. Calculate the project's NPV. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. NPV S 69,414.39
Caradoc Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $410,000 is estimated to result in $150,000 in annual pre-tax cost savings. The press falls into Class 8 for CCA purposes (CCA rate of 20% per year), and it will have a salvage value at the end of the project of $55,000. The press also requires an initial investment in spare parts inventory of $20,000, along with an additional $3,100 in inventory for each succeeding year of the project. If the shop’s tax rate is 35% and its discount rate is 9%. Calculate the NPV of this project.
ABC Corporation is evaluating a project which involves producing a new drug. The project requires an investment in a new plant. ABC can either borrow the money to buy the plant or lease the plant from its manufacturer. The details of each alternative are shown as follows: Purchase: The purchase price of the plant is $800,000 and is expected to have a salvage value of $50,000 at the end of its 4-year life. The plant qualifies for 25% reducing balance depreciation if owned. Lease: The lease involves four annual payments in arrears of $150,000 payable at the end of each year, and a residual payment of $30,000 payable at the end of the lease term, i.e., at the end of year 4. The company tax rate is 30%. The borrowing rate is 8% per annum. Calculate the NPV of leasing and advise the company as to whether it should purchase or lease the plant.
Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube Goldberg Machines. This new equipment, the RGM-7000, will allow Caspian Sea Drinks to expand production. It will cost $14.00 million fully installed and will be fully depreciated over a 16.00 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $2.71 million per year and increased operating costs of $775,814.00 per year. Caspian Sea Drinks' marginal tax rate is 20.00%. The incremental cash flows for produced by the RGM-7000 are _____.
An airline is considering a project of replacement and upgrading of machinery that would improve efficiency. The new machinery costs $500 today and is expected to last for 5 years with no salvage value. Straight line depreciation will be used. Project inflows connected with the new machinery will begin in one year and are expected to be $300 each year for 5 consecutive years and project outflows will also begin in one year and are expected to be $150.00 each year for 5 consecutive years. The corporate tax rate is 30% and the required rate of retum is 7% Calculate the project's net present value. Place your answer in dollars and cents. Do not include a dollar sign or comma in your answer. Work your analysis with at least four decimal places of accuracy YOU ARE NOT FINISHED. NOW GO ON TO THE SECOND PARTI PART 2. Given your estimate of the NPV, should you accept or reject the project? Type the word "accept" if you believe you should go ahead with the project of the word "reject" if you…
Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $157,000 and be depreciated on a 3-year MACRS and have no salvage value. The MACRS percentages each year are 33.33 percent, 44 45 percent, 14 81 percent, and 7.41 percent, respectively. The project will have annual sales of $98,000, variable costs of $27,400, and fixed costs of $12,000. The project will also require net working capital of $2,600 that will be returned at the end of the project. The company has a tax rate of 21 percent and the project's required return is 10 percent. What is the net present value of this project? Multiple Choice $3112 $3.395 $16.360 56718 $4.645
Caradoc Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $421,000 is estimated to result in $161,000 in annual pre-tax cost savings. The press falls into Class 8 for CCA purposes (CCA rate of 20% per year), and it will have a salvage value at the end of the project of $56,100. The press also requires an initial investment in spare parts inventory of $31,000, along with an additional $4,200 in inventory for each succeeding year of the project. If the shop’s tax rate is 35% and its discount rate is 9%. Calculate the NPV of this project. Round the final answer to 2 decimal places
The Bruin's Den Outdoor Gear is considering a new 6-year project to produce a new tent line. The equipment necessary would cost $1.25 million and be depreciated using straight-line depreciation to a book value of zero. At the end of the project, the equipment can be sold for 15 percent of its initial cost. The company believes that it can sell 22,500 tents per year at a price of $62 and variable costs of $23 per tent. The fixed costs will be $375,000 per year. The project will require an initial investment in net working capital of $185,000 that will be recovered at the end of the project. The required rate of return is 10.5 percent and the tax rate is 40 percent. What is the NPV?
An airline is considering a project of replacement and upgrading of machinery that would improve efficiency. The new machinery costs $300 today and is expected to last for 5 years with no salvage value. Straight line depreciation will be used. Project inflows connected with the new machinery will begin in one year and are expected to be $250 each year for 5 consecutive years and project outflows will also begin in one year and are expected to be $ 112.50 each year for 5 consecutive years. The corporate tax rate is 32% and the required rate of return is 9%. Calculate the project's net present value. YOU ARE NOT FINISHED. NOW GO ON TO THE SECOND PART! PART 2. Given your estimate of the NPV, should you accept or reject the project?
Warmack Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $480,000 is estimated to result in $195,000 in annual pretax cost savings. The press falls in the MACRS five- year class, and it will have a salvage value at the end of the project of $81,000. The press also requires an initial investment in spare parts inventory of $21,000, along with an additional $2,600 in inventory for each succeeding year of the project. The shop's tax rate is 30 percent and its discount rate is 8 percent. MACRS schedule : 1st year = 20% 2nd year = 32% 3rd year = 19.2% 4th year = 11.52% 5th year = 5.76%
Caradoc Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $424,000 is estimated to result in $164,000 in annual pre-tax cost savings. The press falls into Class 8 for CCA purposes (CCA rate of 20% per year), and it will have a salvage value at the end of the project of $56,400. The press also requires an initial investment in spare parts inventory of $34,000, along with an additional $4,500 in inventory for each succeeding year of the project. If the shop's tax rate is 35% and its discount rate is 9%. Calculate the NPV of this project. (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) NPV Should the company buy and install the machine press? Yes No
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