9.Capital budgetingMason Co. is evaluating two alternative investment proposals. Below are datafor each proposal:Initial investment costEstimated useful life...Estimated salvage value.Estimated annual net income.Proposal A$84,000$1 due in 5 years, discounted at 12%..$1 due in 6 years, discounted at 12%..$1 received annually for 5 years, discounted at 12%..$1 received annually for 6 years, discounted at 12%..5 years$ 4,000$ 8,200The following information was taken from present value tables:(a) Annual net cash flow:(b) Payback period (in years):(c) Average investment:(d) Return on average investment:(e) Net present value:All revenue and expenses other than depreciation will be received and paid incash. The company uses a discount rate of 12% in evaluating all capitalinvestments.Compute the following for each proposal (round payback period to the nearesttenth of a year and round return on average investment to the nearest tenthof a percent):Proposal A$Proposal B$96,0006 years-0-$ 8,000$Present Value.567.5073.6054.111$%Proposal B$$$%(f) Based on your analysis, which proposal appears to be the best investment?

Part-(A):- Calculation of Annual Net Cash Flows:- Particulars Proposal A Proposal B Net Income…

Answered: Mason Co. is evaluating two alternative…

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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Required information A company that manufactures magnetic flow meters expects to undertake a project that will have the cash flows estimated. First cost, $. Equipment replacement cost in year 2, $ Annual operating cost, $/year Salvage value, $ Life, years -870,000 -300,000 -920,000 250,000 4 At an interest rate of 10% per year, what is the equivalent annual cost of the project? Find the AW value using tabulated factors. The equivalent annual cost of the project is $-1
The management of River Corporation is considering the purchase of a new machine costing $380,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability of this investment: Year 1 2 O 10.5% O 5.5% O 25.5% Operating O 15.5% Income $20,000 20,000 20,000 20,000 20,000 Net Cash Flow $95,000 95,000 The average rate of return (rounded to one decimal place) for this investment is 95,000 95,000 95,000
From the following information calculate the netpresent value of the two projects and suggestwhich of the two projects should be acceptedassuming a discount rate of 10% Project A Project BInitial investment Rs. 20,000 Rs. 30,000Estimated life 5 years 5 yearsScrap value Rs. 1,000 Rs. 2,000 The profit before depreciation and after taxes areas follows:Year Project ARs.Project BRs.1 5,000 20,0002 10,000 10,0003 10,000 5,0004 3,000 3,0005 2,000 3,000
Required information. [The following information applies to the questions displayed below.] Project Y requires a $331,500 investment for new machinery with a five-year life and no salvage value. The project yields the following annual results. Cash flows occur evenly within each year. (PV of $1. FV of $1. PVA of $1. and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Annual Amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation). Depreciation Machinery Selling, general, and administrative expenses Income Years 1-5 4. Determine Project Y's net present value using 9% as the discount rate. Note: Do not round intermediate calculations. Round your present value factor to 4 decimals and final answers to the nearest whole dollar. Net present value Not Cash Flows Project Y $ 400,000 Present Value of Annuity at 9% 179,200 66,300 29,000 $ 125,500 Present Value of Net Cash Flows
Required Information [The following information applies to the questions displayed below.] Project Y requires a $327,000 investment for new machinery with a four-year life and no salvage value. The project yields the following annual results. Cash flows occur evenly within each year. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Annual Amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Machinery Selling, general, and administrative expenses Income Project Y $ 360,000 161,280 81,750 26,000 $ 90,970 2. Determine Project Y's payback period. Project Y Payback Period Numerator: 1 Denominator: 1 Payback Period = 0
Harris Corporation has provided the following data concerning an investment project that it is considering: Initial investment Annual cash flow Salvage value at the end of the project Expected life of the project Discount rate $ 160,000 $ 54,000 $ 11,000 O $67,000 O $160,516 O $516 O $(5,776) 4 15 per year years % Use Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using the tables provided. The net present value of the project is closest to:
What is the annual equivalent cost of purchasing a lift truck that has an initial cost of $85,000, an annual operating cost of $13,500, and an estimated salvage value of $23,000 after six years of use at an annual interest rate of 6%? X More Info Equal Payment Series Single Payment Compound Present Amount Worth Compound Amount Factor (F/A, I, N) Sinking Present Fund Worth Factor Factor Capital Recovery Factor (A/P, i, N) Factor Factor (F/P, i, N) (P/F, i, N) (A/F, i, N) (P/A, i, N) 1.0800 0.9434 1.0000 1.0000 0.9434 1.0800 1.1238 0.8900 2.0800 0.4854 1.8334 0.5454 1.1910 0.8396 3.1836 0.3141 2.6730 0.3741 1.2625 0.7921 4.3746 0.2288 3.4861 0.2886 1.3382 0.7473 5.6371 0.1774 4.2124 0.2374 1.4185 0.7050 6.9753 0.1434 4.9173 0.2034 0.6851 8.3938 0.1191 5.5824 0.1791 1.5038 1.5938 1.6895 0.6274 9.8975 0.1010 6.2098 0.1610 0.5919 11.4913 0.0870 6.8017 0.1470 1.7908 0.5584 13.1808 0.0759 7.3801 0.1359 SAWNIN 1 2 3 4 5 67899 10
Consider the following project balances for a typical investment project with athe service life of five years: (a) Fill in the blanks by constructing the original cash flows of the project anddetermining the terminal balance.(b) Determine the interest rate used in the project-balance calculation, andcompute the present worth of this project at the computed interest rate.
The following table summarizes the financial data for a proposed new asset. The issue is how long the asset should be kept. Assume an interest rate of 12% and delermine the economic service life of the anset. End of YearN) Investment cost O&M Cost Salvage value $14,000 $3.400 $8.000 $4600 $6.000 $5.800 $4,000 01 year O2 years 3 years O Not enough information
Given the following table for two alternatives. consider that the interest rate = 10% Alternative A B First cost, $ -90,000 -750,000 AOC, $/year -50,000 -10,000 Salvage value, $ Life, years 8,000 2,000,000 00 All of the following equations for calculating the capitalized cost of alternative B are correct, except: Select one: = -750,000 – 10,000/0.10 a. + 2,000,000/(1+0.10) b. = [-750,000(0.10) – 10,000]/0.10 c. capitalized cost = -750,000 – 10,000/0.10 + 2000000 (0.10) d. capitalized cost = -750,000 – 10,000/0.10
The following data pertain to an investment proposal (Ignore income taxes.): Cost of the investment $ 35,000 Annual Income $ 12,000 Estimated salvage value $ 6,000 Life of the project 4 years Discount rate 10% The net present value of the proposed investment is closest to: Round to nearest dolla

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