You are considering two different methods of constructing a new warehouse. The first method uses prefabricated building segments, wouldhave an initial cost of $4.8 million, would have annual maintenance costs of $100,000 and would last for 25 years. The second alternativewould employ a new carbon fibre panel technology, would have an initial cost of $6 million would have maintenance costs of $525,000 everyten years and is expected to last 40 years. Both buildings are in CCA class 1 (CCA rate of 4%). The salvage value for each would be 25% ofinitial cost. The firm uses a 15% cost of capital and it has a 38% tax rate.Calculate the NPV for each machine using the six step approach (nearest dollar without dollar sign ($) or comma eg 15000) Negative cashflow is -15000):What is the NPV for Alternative A?What is the NPV for Alternative B?What is the EAC for Alternative A?What is the EAC for Alternative B?

Annuity is a series of equal periodic payments.With periodic interest rate (r), period (n) and…

Answered: ou are considering two different…

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

See similar textbooks

Similar questions

The city is installing a new swimming pool in the east end recreation centre. One design being considered is a reinforced concrete pool that will cost $5000000 to install. Thereafter, the inner surface of the pool will need to be refinished and painted every 10 years at a cost of $450000 per refinishing. Assuming that the pool will have essentially an infinite life, what is the present worth of the costs associated with the pool design? The city uses a MARR of 6%. Review the following table and calculate the present worth of the project for a +5% change in refinishing costs. Round your answer to the nearest dollar. Parameter Construction Costs Refinishing Costs MARR [%] -10% -5% Base Case +5% +10% $5000000 $450000 6 Present Worth of -10% -5% 0% +5% Costs +10% Changes to Construction Costs Changes to refinishing Costs Changes to MARR ????? ?
Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following: Machine A could be purchased for $22,000. It will last 10 years with annual maintenance costs of $800 per year. After 10 years the machine can be sold for $2,310. Machine B could be purchased for $20,000. It also will last 10 years and will require maintenance costs of $3,200 in year three, $4,000 in year six, and $4,800 in year eight. After 10 years, the machine will have no salvage value. Required: Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year. Ignore income tax considerations. Calculate the present value of Machine A & Machine B. Which machine Esquire should purchase? Note: Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round…
Agate Marketing Inc. intends to distribute a new product. It is expected to produce net returns of $13,000 per year for the first four years and $11,000 per year for the following three years. The facilities required to distribute the product will cost $36,000, with a disposal value of $9,600 after seven years. The facilities will require a major facelift costing $10,000 each after three years and after five years. If Agate requires a return on investment of 15%, should the company distribute the new product? If NPV is negative your answer must include the negative sign. Net Present Value (NPV) = Should the decision be Accept or Reject? Fir
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 $101,000. 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 $1.5 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 $468,000. Finally, the project requires an initial investment into net working capital equal to 10 percent of predicted first-year sales. Subsequently, net working capital is 10 percent of the predicted sales over the following year. Sales of protein bars are expected to be $4.5 million in the first year and to stay…
The ABC Ltd is analysing the costs and benefits of setting up an extra fast-food outlet in Adelaide. The predicted costs and income flows are provided below: $2 million site acquisition and development costs. The capital depreciation expense is $50,000 per year. Investment in plant and equipment of $600,000. The plant and equipment have an estimated useful life of 5 years and the residual value would be zero. The plant and equipment will be depreciated on a straight-line basis for tax purposes. The forecasted sales in year 1 is $600,000 and $800,000 per year thereafter. Labour and material costs are equivalent to 50 per cent of incremental sales. The policy (objective) is to sell the outlet at the end of year 3. The estimated selling price is $3.5 million. Sales in a similar outlet of ABC Ltd will decline by $80,000 per year due to loss of customers and experienced staff to the new venture. Other operating costs are about $150,000 per year (fixed) The net working capital requirement at…
Two sites are currently under consideration for a bridge over a small river. The north site requires a suspension bridge. The south site has a much shorter span, allowing for a truss bridge, but it would require new road construction.The suspension bridge will cost $500 million with annual inspection andmaintenance costs of $350,000. In addition, the concrete deck would have to be resurfaced every 10 years at a cost of $1,000,000. The truss bridge and approach roads are expected to cost $250 million and have annual maintenance costs of $200,000. This bridge would have to be painted every 3 years at a cost of $400,000. In addition, the bridge would have to be sandblasted every 10 years at a cost of $1,900,000. The cost of purchasing right-of-way is expected to be $20 million for the suspension bridge and $150 million for the truss bridge. Compare the alternatives on the basis of their capitalized cost if the interest rate is 6% per year.
Amold 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 $1 million and which it currently rents out for $127,000. 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 $1.5 million. This investment can be fully depreciated straight-line over the next 10 years for tax purposes. However, Amold Inc. expects to terminate the project at the end of eight years and to sell the machines and equipment for $446,000. Finally, the project requires an initial investment into net working capital equal to 10 percent of predicted first-year sales. Subsequently, net working capital is 10 percent of the predicted sales over the following year. Sales of protein bars are expected to be $4.6 million in the first year and to stay constant…
Englewood Company has an opportunity to produce and sell a revolutionary new smoke detector for homes. To determine whether this would be a profitable venture, the company has gathered the following data on probable costs and market potential: a. New equipment would have to be acquired to produce the smoke detector. The equipment would cost $100,000 and be useable for 12 years. After 12 years, it would have a salvage value equal to 10% of the original cost. b. Production and sales of the smoke detector would require a working capital investment of $ 40,000 to finance accounts receivable, inventories, and day-to-day cash needs. This working capital would be released for use elsewhere after 12 years. c. An extensive marketing study projects sales in units over the next 12 years as follows: Year Sales in Units 1... 7,000 3..... ... 10,000 4 -12.. ..... 4,000 2.... d. The smoke detectors would sell for $45 each; variable costs for production, administration, and sales would be $25 per…
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 $1 million and which it currently rents out for $116,000. 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 $1.3 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 $581,000. 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 $4.5 million in the first year and to stay constant for eight…
Atlantic Manufacturing is considering a new investment project that will last for four years. The delivered and installed cost of the machine needed for the project is $23,957 and it will be depreciated according to the three-year MACRS schedule. The project also requires an initial increase in net working capital of $300. Financial projections for sales and costs are in the table below. In addition, since sales are expected to fluctuate, NWC requirements will also fluctuate. The end-of- year NWC requirements are included below (hint: these NWC capital requirements DO NOT represent the change in NWC for the period). The $0 requirement for NWC at the end of year 4 means that all NWC is recovered by the end of the project. The corporate tax rate is 35% and the required return on the project is 12%. Year 1 2 3 4 Sales $11,653 $12,746 $13,973 $10,638 Costs 2,322 2,536 3,456 1,434 NWC 324 352 231 0 Requirements What is the project's NPV? (Round answer to O decimal places. Do not round…
A company is planning to install a new automated plastic-molding press. Four different presses are available. The initial capital investments and annual expenses for these four mutually exclusive alternatives are as shown: Assume that each press has the same output capacity (120,000 units per year) and has no market value at the end of its useful life; the selected analysis period is five years; and any additional capital invested is expected to earn at least 10% per year. Which press should be chosen if 120,000 nondefective units per year are produced by each press and all units can be sold? The selling price is $0.375 per unit. Solve by hand and by spreadsheet.
A utility company is considering adding a second feedwater heater to its existing system unit to increase the efficiency of the system and thereby reduce fuel costs. The 150-MW unit will cost $1,650,000 and has a service life of 25 years. The expected salvage value of the unit is considered negligible. With the second unit installed, the efficiency of the system will improve from 55% to 56%. The fuel cost to run the feedwater is estimated at $0.05 kWh. The system unit will have a load factor of 85%, meaning that the system will run 85% of the year. Determine the equivalent annual worth of adding the second unit with an interest rate of 12%. Oa) $1,603,098 b) $12,573,321 Oc) $1,813,473 d) None of these

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS