Don't use ai to answer I will report you answer Payback; ARRKurt's Office Services is evaluating the purchase of a state-of-the-art desktop publishing system that costs $40,000, has a six-year life, and has no salvage value at the end of its life. The company's controllerestimates that the system will annually generate $13,800 of cash receipts and create $2,760 of cash operating costs. The company's tax rate is expected to be 30 percent during the life of the asset, and thecompany uses straight-line depreciation.a. Determine the annual after-tax cash flows from the project. $ 9,728b. Determine the after-tax payback period for the project.Note: Round your answer to one decimal place (i.e. round 4.3555 to 4.4).4.1yearsc. Determine the after-tax accounting rate of return for the project. (Assume tax and financial accounting depreciation are equal.)Note: Round percentage to one decimal point (i.e. round 4.555% to 4.6%).5.5* %Check

1.Annual After-Tax Cash FlowsPre-tax cash flows: Cash receipts−Operating…

Answered: Payback; ARR Kurt's Office Services is…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 13P

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Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $17 million, and production and sales will require an initial $5 million investment in net operating working capital. The company’s tax rate is 25%. What is the initial investment outlay? The company spent and expensed $150,000 on research related to the new product last year. What is the initial investment outlay? Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. What is the initial investment outlay?
Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the following cash flows over the next five years: $99,000, $88,000, $92,000. $87,000, and $72,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel. see Appendix C.
Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.
Manzer Enterprises is considering two independent investments: A new automated materials handling system that costs 900,000 and will produce net cash inflows of 300,000 at the end of each year for the next four years. A computer-aided manufacturing system that costs 775,000 and will produce labor savings of 400,000 and 500,000 at the end of the first year and second year, respectively. Manzer has a cost of capital of 8 percent. Required: 1. Calculate the IRR for the first investment and determine if it is acceptable or not. 2. Calculate the IRR of the second investment and comment on its acceptability. Use 12 percent as the first guess. 3. What if the cash flows for the first investment are 250,000 instead of 300,000?
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A company is considering purchasing a special machine to expand one of its production lines. The machine costs $1,000,000 and has an estimated service life of 3 years annual after-tax revenue are expected to be $430,000 and the salvage value of the machine at the end of the third year could be $40,000. To maximize its ROI the company is borrowing the full purchase amount from a local bank at 12% annual interest, instead of funding the purchase from its retained earnings (equity financing). The company believes it can arrange to pay the bank only the interest expenses over the project life and postpone the repayment of the principle of the borrowed amount until the end of the third year. MARR is 15%, and the corporate tax rate t =40% ( ignore depreciation). Can you help the company calculate the amount of gain or (loss) in the project NPV, due to debt financing of the project. Note: after tax revenues or expenses are calculated by multiplying before tax values by (1-t) Use excel to…
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Kelly, Inc. management is considering purchasing a new machine at a cost of $4,133,250. They expect this equipment to produce cash flows of $814,322, $863,275, $937,250, $1,017,112, $1,212,960, and $1,225,000 over the next six years. If the appropriate discount rate is 15 percent, compute the NPV of this investment and explain how the tax imposition would affect your NPV.
Blues Bros. Inc. is considering an investment in a computer that is capable of producing various images that are useful in the production of commercial art. The computer would cost P20,000 and have an expected life of eight years. The computer is expected to generate additional annual net cash receipts (before-tax) of P6,000 per year. The computer will be depreciated according to the straight-line method and the firm's marginal tax rate is 25 percent. 1. Refer to Blues Bros. Inc. What is the after-tax payback period for the computer project?
A gym owner is considering opening a location on the other side of town. The new facility will cost $1.38 million and will be depreciated on a straight-line basis over a 20-year period. The new gym is expected to generate $541,000 in annual sales. Variable costs are 52 percent of sales, the annual fixed costs are $86,900, and the tax rate is 34 percent. What is the operating cash flow?
Hypore Darby Park Department is considering a new capital investment. The following information is available on the investment. The cost of the machine will be $348,400. The annual cost savings if the new machine is acquired will be $80,000. The machine will have a 6-year life, at which time the terminal disposal value is expected to be zero. Hypore Park Department is assuming no tax consequences. What is the internal rate of return for Hypore Park Department? Question 6 options: 11% 9% 5% 10%

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