Novak Fashions needs to replace a beltloop attacher that currently costs the company $58,000 in annual cash operating costs. This machine is of no use to another company, but it could be sold as scrap for $3,128. Managers have identified a potential replacement machine, Euromat's Model HD-435. The HD-435 is priced at $93,000 and would cost Novak Fashions $38,000 in annual cash operating costs. The machine has a useful lif of 8 years, and it is not expected to have any salvage value at the end of that time. Click here to view the factor table. (a) Calculate the net present value of purchasing the HD-435, assuming Novak Fashions uses a 12% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to O decimal place, eg. 58,971.) Net present value $ (b) Calculate the internal rate of return on the HD-435. (Round answer to 0 decimal places, eg. 25%.) Internal rate of return (c) Calculate the payback period of the HD-435. (Round answer to 4 decimal places, e.g. 15.2515.) Payback period years

Novak Fashions needs to replace a beltloop attacher that currently costs the company $58,000 in annual cash operating costs. This machine is of no use to another company, but it could be sold as scrap for $3,128. Managers have identified a potential replacement machine, Euromat's Model HD-435. The HD-435 is priced at $93,000 and would cost Novak Fashions $38,000 in annual cash operating costs. The machine has a useful lif of 8 years, and it is not expected to have any salvage value at the end of that time. Click here to view the factor table. (a) Calculate the net present value of purchasing the HD-435, assuming Novak Fashions uses a 12% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to O decimal place, eg. 58,971.) Net present value $ (b) Calculate the internal rate of return on the HD-435. (Round answer to 0 decimal places, eg. 25%.) Internal rate of return (c) Calculate the payback period of the HD-435. (Round answer to 4 decimal places, e.g. 15.2515.) Payback period years

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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Novak Fashions needs to replace a beltloop attacher that currently costs the company $58,000 in annual cash operating costs. This machine is of no use to another company, but it could be sold as scrap for $3,128. Managers have identified a potential replacement machine, Euromat's Model HD-435. The HD-435 is priced at $93,000 and would cost Novak Fashions $38,000 in annual cash operating costs. The machine has a useful life of 8 years, and it is not expected to have any salvage value at the end of that time. Click here to view the factor table.
This-Test-Is-a-Breeze, Inc. owns a warehouse in Wilmington, DE. The company has decided to use the warehouse for the production of plastic polymers. To do so the company will forgo the option of renting the warehouse to a third party, which would have generated $50,000 of annual cash inflow. The $50,000 that the company is forgoing to pursue another investment is: Sunk Cost Opportunity Cost Erosion Cost Variable Cost
A chemical engineer is considering two styles of pipes for moving distillate from a refinery to the tank farm. A small pipeline will cost less to purchase (inclucding valves and other appurtenances) but will have a high head loss and, therefore, a higher pumping cost. The small pipeline will cost $17 million installed and will have an operating cost of $12,000 per month. A larger-diameter pipeline will cost $21 million installed, but its operating cost will be only $8000 per month. Assume the salvage value is 10% of the first cost for each pipeline at the end of the 10-year study period. Determine the equivalent annual worth of the small pipieline at a MARR of 12% per year compounded monthly. (Answer should be per month)
Sunland Inc. manufactures snowsuits. Sunland is considering purchasing a new sewing machine at a cost of $2.45 million. Its existing machine was purchased 5 years ago at a price of $1.8 million; six months ago, Sunland spent $55,000 to keep it operational. The existing sewing machine can be sold today for $244,395. The new sewing machine would require a one-time, $85,000 training cost. Operating costs would decrease by the following amounts for years 1 to 7: Year 1 2 3 4 5 6 7 $389,500 400,400 410,500 425,400 O 433,000 435,400 436,600 The new sewing machine would be depreciated according to the declining-balance method at a rate of 20%. The salvage value expected to be $379,200. This new equipment would require maintenance costs of $98,000 at the end of the fifth year. The cost of capital is 9%. Click here to view PV table. Use the net present value method to determine the following: (If net present value is negative then enter with negative signi preceding the number eg.-45 or…
The Knot manufactures men’s neckwear at its Spartanburg plant. The Knot is considering implementing a JIT production system. The following are the estimated costs and benefits of JIT production: a. Annual additional tooling costs $250,000 annually. b. Average inventory would decline by 80% from the current level of $1,000,000. c. Insurance, space, materials-handling, and setup costs, which currently total $400,000 annually, would decline by 20%. d. The emphasis on quality inherent in JIT production would reduce rework costs by 25%. The Knot currently incurs $160,000 in annual rework costs. e. Improved product quality under JIT production would enable The Knot to raise the price of its product by $2 per unit. The Knot sells 100,000 units each year. The Knot’s required rate of return on inventory investment is 15% per year. Q. Suppose The Knot implements JIT production at its Spartanburg plant. Give examples of performance measures The Knot could use to evaluate and control JIT…
Wimpod Inc, purchased a machine 8 years ago for P419,000 when it launched product M50. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new Model 500 machine costing P375,000 or a new Model 400 costing P413,000. Management decided to buy the new Model 400 machine. It has less capacity than the new Model 500 machine, but its capacity is sufficient to continue making product M50. Management also considered, but rejected, the alternative of dropping product M50 and not replacing the old machine. If that were done, the P375,000 invested in the new machine could instead have been invested in a project that would have a return total of P475,000. P is the TOTAL DIFFERENTIAL COST.
A distributor of fasteners is opening a new plant and considering whether to use a mechanized process or a manual process to package the product. The manual process will have a fixed cost of $36,234 and a variable cost of $2.14 per bag. The mechanized process would have a fixed cost of $84,420 and a variable cost of $1.85 per bag. The company expects to sell each bag of fasteners for $2.75. a) What is the break-even point for the manual process (in units)? b) What is the break-even point for the mechanized process (in units)? c) A point of indifference for two processes is quantity at which each process generates the same amount of profit (review video). What is the point of indifference for the two processes? (Hint: 1) Use equations to set profit of manual process equal to mechanized process and solve for quantity; 2) (Excel) If you have a break-even for each process - have only one cell that represents quantity that be used to calculates costs/revenues for each process and use Goal…
Johnson Limited is contemplating the installation of a new system that would allow for automated handling of customer inquiries about their order status, account balances, etc. Currently all such inquiries are handled manually by customer service representatives. The software for the new system would cost $214,000. An additional $169,000 would be required for one-time installation costs. Management estimates that the new system would result in costs of $10,300 per year related to addressing software issues and other technological problems that may arise. However, the new system is expected to reduce labour costs by $65,000 per year. Management estimates that the system would be used for five years. Severance costs related to the employees that would be laid off after implementing the new system would be $22,600. Johnson Limited requires a return of at least 15% on investments of this type. Required: Ignore income taxes. 1. Compute the net annual cost savings promised by the new system.…
"I'm not sure we should lay out $335,000 for that automated welding machine," said Jim Alder, president of the Superior Equipment Company. "That's a lot of money, and it would cost us $91,000 for software and installation, and another $56,400 per year just to maintain the thing. In addition, the manufacturer admits it would cost $54,000 more at the end of three years to replace worn-out parts." "I admit it's a lot of money," said Franci Rogers, the controller. "But you know the turnover problem we've had with the welding crew. This machine would replace six welders at a cost savings of $121,000 per year. And we would save another $8,200 per year in reduced material waste. When you figure that the automated welder would last for six years, I'm sure the return would be greater than our 18% required rate of return." "I'm still not convinced," countered Mr. Alder. "We can only get $20,500 scrap value out of our old welding equipment if we sell it now, and in six years the new machine will…
Middle Industries produces a sensor for use in manufacturing. It produces the sensor in a plant with an annual practical capacity of 75,000 units. The variable cost of the sensor is $185.00 per unit, and the fixed costs of the plant are $12,375,000 annually. Current annual demand is 55,000 sensors. Middle Industries bought the plant because it was close to its other manufacturing facilities and was available for sale when they were searching for a location. Required: What cost per sensor should the cost system report to facilitate management decision making? What is the cost of excess capacity? What cost per sensor would the cost system report if the smallest manufacturing plant that could be built was able to produce 75,000 sensors? What would be the cost of excess capacity?
What would the effect of the failure in the ratio measurement?
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