Julianna Cardenas, owner of Baker Company, was approached by a local dealer of aie conditioning units. The dealer proposed replacing Baker's old cooling system with a modern more efficient system. The c $60,000 per year in energy costs. The estimated life of the new system is 10 years, with no salvage value expected. Excited over the possibility of saving $60,000 per year and having a more reli. able unit, Julianna requested an analysis of the project's economic viability. All capital projects are required to earn at least the firm's cost of capital, which is 8%. There are no income taxes cost of the new system was quoted at $339,000, but it would save

Julianna Cardenas, owner of Baker Company, was approached by a local dealer of aie conditioning units. The dealer proposed replacing Baker's old cooling system with a modern more efficient system. The c $60,000 per year in energy costs. The estimated life of the new system is 10 years, with no salvage value expected. Excited over the possibility of saving $60,000 per year and having a more reli. able unit, Julianna requested an analysis of the project's economic viability. All capital projects are required to earn at least the firm's cost of capital, which is 8%. There are no income taxes cost of the new system was quoted at $339,000, but it would save

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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Calculate the NPV based upon the following facts: Bob has just completed the development of a better face shield for health workers. The new product is expected to produce annual revenues of $230,000. Bob requires an investment in an advanced 3D Printer costing $30,000. The project has an expected life of 5 years. The 3D printer will have a $20,000 salvage value at the end of 5 years. Working capital is expected to increase by $80,000 which Bob will recover at the end of the products life cycle. Annual operating expenses are estimated at $200,000. The required rate of return is 4%.
Arnold Inc. is considering a proposal to manufacture high-end protein bars used as food supplements by body builders. The project requires use of an existing warehouse, which the firm acquired three years ago for $3 million and which it currently rents out for $137,000. Rental rates are not expected to change going forward. In addition to using the warehouse, the project requires an upfront investment into machines and other equipment of $1.4 million. This investment can be fully depreciated straight-line over the next 10 years for tax purposes. However, Arnold Inc. expects to terminate the project at the end of eight years and to sell the machines and equipment for $440,000. Finally, the project requires an initial investment into net working capital equal to 10% of predicted first-year sales. Subsequently, net working capital is 10% of the predicted sales over the following year. Sales of protein bars are expected to be $4.7 million in the first year and to stay constant for eight…
Dwight Donovan, the president of Walton Enterprises, is considering two investment opportunities. Because of limited resources, he will be able to invest in only one of them. Project A is to purchase a machine that will enable factory automation: the machine is expected to have a useful life of four years and no salvage value. Project 8 supports a training program that will improve the skills of employees operating the current equipment. Initial cash expenditures for Project A are $102,000 and for Project B are $33,000. The annual expected cash inflows are $32,178 for Project A and $10,865 for Project B. Both investments are expected to provide cash flow benefits for the next four years. Walton Enterprises' desired rate of return is 4 percent. (PV of $1 and PVA of $1 ) (Use appropriate foctor(s) from the tables provided.) Required o. Compute the net present value of each project. Which project should be adopted based on the net present value approach? b. Compute the approximate…
Cullumber Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure, but its maintenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimates were made of the cash flows. The company's cost of capital is 5%. Initial cost Annual cash inflows Annual cash outflows Cost to rebuild (end of year 4) Salvage value Estimated useful life Click here to view the factor table Your answer is partially correct Option A Option B Option A $170,000 $70,200 $30,700 $49,000 $ Compute the (1) net present value. (2) profitability index, and (3) internal rate of return for each option. (Hint: To solve for internal rate of return, experiment with alternative discount rates to arrive at a net present…
a. Campbell Manufacturing is considering the purchase of a new welding system. The cash benefits will be $480,000 per year. The system costs $2,450,000 and will last 10 years. b. Evee Cardenas is interested in investing in a women's specialty shop. The cost of the investment is $230,000. She estimates that the return from owning her own shop will be $55,000 per year. She estimates that the shop will have a useful life of 6 years. c. Barker Company calculated the NPV of a project and found it to be $63,900. The project's life was estimated to be 8 years. The required rate of return used for the NPV calculation was 10%. The project was expected to produce annual after-tax cash flows of $135,000. Required: 1. Compute the NPV for Campbell Manufacturing, assuming a discount rate of 12%. If required, round all present value calculations to the nearest dollar. Use the minus sign to indicate a negative NPV. Should the company buy the new welding system? Yes 2. Conceptual Connection: Assuming a…
Kingsville plans to buy a street-cleaning machine. A used cleaning vehicle will cost $80,000 and have a $10,000 salvage value at the end of its five year life. A new system with advanced features will cost $160,000 and have a $45,000 salvage value at the end of its five year life. The new system is expected to reduce labor hours compared with the used system. Current street cleaning activity requires the used system to operate 8 hours per day for 20 days per month. Labor costs $50 per hour and MARR is 12% per year. Find the breakeven labor hours for the new system. USE SOLVER FUNCTION IN EXCEL
Lumberjack Power, operator of a nuclear power plant, is planning to replace its current equipment with some that is more environmentally friendly. The old equipment has annual operating expenses of $6750 and can be kept for 8 more years. The equipment will have a salvage value of $4000, if sold 8 years from now, and has a current market value of $24,000, if it is sold now. The new equipment has an initial cost of $62,000 and has estimated annual operating expenses of $6250 each year. The estimated market value of the new equipment is $19,000 after 8 years of operation. If the company's MARR is 16% per year, should the equipment be replaced? Use a study period of 8 years and the present worth method.
A consulting engineer is considering two methods for lining landfill for municipal solid waste management in Bannock County, Idaho. A geosynthetic bentonite clay liner (GCL) will cost $2.0 million to install, and if it is renovated after 4 years at a cost of $400,000, its life can be extended another 2 years. Alternatively, a high-density polyethylene (HDPE) geomembrane can be installed that will have a useful life of 12 years. At an interest rate of 6% per year, how much money can be spent on the HDPE liner for the two methods to break even?
Assume that United Technologies is evaluating a proposal to change the company's manual design system to a computer-aided design (CAD) system. The proposed system is expected to save 10,000 design hours per year; an operating cost savings of $50 per hour. The annual cash expenditures of operating the CAD system are estimated to be $250,000. The CAD system requires an initial investment of $500,000. The estimated life of this system is five years with no salvage value. The tax rate is 40 percent. United Technologies has a cost of capital of 20 percent.Assume that management intends to use double-declining balance depreciation with a switch to straight-line depreciation (applied to any undepreciated balance) starting in Year 4.Determine the project's net present value
Can some one please help me to answer each question correctly? please and thank you.
Please help solve.
A proposed building may be roofed in either composition roofing (C) or galvanized steel sheet (S). The composition roof costs $56,000 and is replaced every 5 years (assume at the same cost). The steel roof costs $68,000 but the useful life is very long. Neither roof has any salvage value, nor is maintenance needed. If the MARR is 10%, what minimum life must the steel roof have to make it the better alternative? (Report to the nearest whole year; don't bother interpolating.)

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