Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 15P
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Financial Ratios
A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.
Return on Equity
The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
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![Múltiple Choice
O.
O
O
$(53,014)
$(49,014)
$(55,014)
$(70,014)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fababa285-9981-44e9-b928-722f175219ce%2F0e53b8b0-0df3-4c2b-ab8c-90a250581d7a%2Fchlb1s4_processed.png&w=3840&q=75)
Transcribed Image Text:Múltiple Choice
O.
O
O
$(53,014)
$(49,014)
$(55,014)
$(70,014)
![Assume that a company is choosing between two alternatives-keep an existing machine or replace it with a new machine. The
costs associated with the two alternatives are summarized as follows:
Purchase cost (new)
Remaining book value
Overhaul needed now
Existing
Machine
$ 15,000
$ 6,000
$ 5,000
New
Machine
$ 22,000
Annual cash operating costs
Salvage value (now)
Salvage value (eight years from now)
$6,000
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.
If the company overhauls its existing machine, it will be usable for eight more years. If it buys the new machine, it will be used for
eight years. Assuming a discount rate of 13%, what is the net present value of the cash flows associated with keeping the existing
machine?
$ 10,500
$ 2,000
$1,000
$ 7,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fababa285-9981-44e9-b928-722f175219ce%2F0e53b8b0-0df3-4c2b-ab8c-90a250581d7a%2F16mrizi_processed.png&w=3840&q=75)
Transcribed Image Text:Assume that a company is choosing between two alternatives-keep an existing machine or replace it with a new machine. The
costs associated with the two alternatives are summarized as follows:
Purchase cost (new)
Remaining book value
Overhaul needed now
Existing
Machine
$ 15,000
$ 6,000
$ 5,000
New
Machine
$ 22,000
Annual cash operating costs
Salvage value (now)
Salvage value (eight years from now)
$6,000
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.
If the company overhauls its existing machine, it will be usable for eight more years. If it buys the new machine, it will be used for
eight years. Assuming a discount rate of 13%, what is the net present value of the cash flows associated with keeping the existing
machine?
$ 10,500
$ 2,000
$1,000
$ 7,000
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