McClintock Corporation is considering investir $60,000 in a new piece of machinery that will generate net annual cash flows of $20,000 ea year for the next 6 years. The machine has a salvage value of $4,000 at the end of its 6 yea useful life. McClintock's cost of capital and discount rate is 10%. Which of the following olalon on riter

McClintock Corporation is considering investir $60,000 in a new piece of machinery that will generate net annual cash flows of $20,000 ea year for the next 6 years. The machine has a salvage value of $4,000 at the end of its 6 yea useful life. McClintock's cost of capital and discount rate is 10%. Which of the following olalon on riter

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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Carousel Company is considering a new capital investment. The following information is available on the investment. The cost of the machine will be $300,000. The annual cost savings if the new machine is acquired will be $80,000. The machine will have a 5-year life, at which time the terminal disposal value is expected to be $40,000. Carousel Company is assuming no tax consequences. Required: If Carousel Company has a required rate of return of 10%, which of the following is closest to the present value of the project? a. $3,264 b. $300,000 c. $24,836 d. $28,120
A company is considering purchasing a new piece of equipment that costs $100,000 and has an estimated useful life of 5 years. The equipment should increase annual cash receipts by $80,000 per year. Cash expenses to operate the equipment should be $25,000. The company uses straight-line depreciation. If the after-tax cost of capital is 10% and the tax rate is (Round your 30%, the net present value of this project based on the tables in the appendix is $ answer to the nearest whole number.) Need help? Review these concept resources. Read About the Concept
Briar Corporation is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net cash flow of $204,000. The equipment will have an initial cost of $1,204,000 and an 8-year useful life. The salvage value of the equipment is estimated to be $204,000. Briar's cost of capital is 8%. (Future Value of $1. Present Value of $1, Future Value Annuity of $1. Present Value Annuity of $1) Note: Use appropriate factor from the PV tables. Required: a. What is the accounting rate of return? b. What is the payback period? c. What is the net present value? d. What would the net present value be with a 14% cost of capital? e. Based on the NPV calculations, what would be the equipment's internal rate of return? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D What is the accounting rate of return? Required E Note: Do not round intermediate calculations. Round your final…
Homer Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $143,000. The equipment will have an initial cost of $550,000 and have a 5-year life. If the salvage value of the equipment is estimated to be $18,000, what is the annual net cash flow? Multiple Choice 3 $125,000 $36,600 $249,400 $161,000
Byron Corporation is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net cash flow of $130,000. The equipment will have an initial cost of $475,000, a 5-year useful life, and an estimated salvage value of $84,000. If the company's cost of capital is 11%, what is the approximate net present value? (Future Value of $1. Present Value of $1. Future Value Annuity of $1. Present Value Annuity of $1) Note: Use the appropriate factors from the PV tables. Multiple Choice $(5,467) $214,000 $130,000 $55,321
Solomon company is considering investing in two new vans that are expected to generate combined cash inflows of $26,500 per year. The Van's combined purchase price is $100,000. The expected life and a salvage value of each are four years and $20,700, respectively. Solomon has an average cost of capital of 12 percent. (PVof$1and PVAof $1) (use appropriate factors(s) from the tables provided.) required a) calculate the net present value of the investment opportunity. ( negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to 2 decimal places.) b) indicate whether the investment opportunity is expected to earn a return that is above or below the cost of capital and whether it should be accepted. B)Will the return be above or below the cost of capital? Should the investment opportunity be accepted?
Thornton Company is considering investing in two new vans that are expected to generate combined cash inflows of $26,000 per year. The vans' combined purchase price is $95,500. The expected life and salvage value of each are four years and $20,000, respectively. Thornton has an average cost of capital of 16 percent. (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Required a. Calculate the net present value of the investment opportunity. Note: Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to 2 decimal places. b. Indicate whether the investment opportunity is expected to earn a return that is above or below the cost of capital and whether it should be accepted. a. Net present value b. Will the return be above or below the cost of capital? b. Should the investment opportunity be accepted? Above Accepted
Hayden Company is considering the acquisition of a machine that costs $429,000. The machine is expected to have income of $71,400. The estimated cash payback period for the machine is (round to one decimal place) O a. 7.2 years Ob. 6.0 years O c. 1.2 years O d. 5.1 years useful life of 6 years, a negligible residual value, an annual net cash inflow of $84,000, and annual operating
Poe Company is considering the purchase of new equipment costing $85,500. The projected annual cash inflows are $35,700, to be received at the end of each year. The machine has a useful life of 4 years and no salvage value. Poe requires a 10% return on its investments. The present value of an annuity of 1 and present value of an annuity for different periods is presented below. Compute the net present value of the machine. Periods Present Value of 1 at 10% Present Value of an Annuity of 1 at 10% 1 0.9091 0.9091 2 0.8264 1.7355 3 0.7513 2.4869 4 0.6830 3.1699 $45,409. $14,857. $27,665. $(14,857). $(27,665).
Rundle Company is considering investing in two new vans that are expected to generate combined cash inflows of $34,000 per year. The vans' combined purchase price is $93,000. The expected life and salvage value of each are seven years and $21,700, respectively. Rundle has an average cost of capital of 16 percent. (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Required a. Calculate the net present value of the investment opportunity. Note: Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to 2 decimal places. b. Indicate whether the investment opportunity is expected to earn a return that is above or below the cost of capital and whether it should be accepted. a. Net present value b. Will the return be above or below the cost of capital? b. Should the investment opportunity be accepted?
Northern Manufacturing Ltd. is considering the investment of $85,000 in a new machine. The machine will generate cash flow of $12,000 per year for each year of its eleven-year life and will have a salvage value of $7,000 at the end of its life. The company's cost of capital is 8%. Table 6-4 and Table 6-5. (Use appropriate factor(s) from the tables provided. Round the PV factors to 4 decimals.)Required: Calculate the net present value of the proposed investment. (Ignore income taxes.)
Campbell Company is considering investing in two new vans that are expected to generate combined cash inflows of $30,000 per year. The vans' combined purchase price is $96,500. The expected life and salvage value of each are five years and $20,300, respectively. Campbell has an average cost of capital of 14 percent. (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Required a. Calculate the net present value of the investment opportunity. Note: Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to 2 decimal places. b. Indicate whether the investment opportunity is expected to earn a return that is above or below the cost of capital and whether it should be accepted. a. Net present value b. Will the return be above or below the cost of capital? b. Should the investment opportunity be accepted? Above Accepted 4

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