Priscila Eunice Co. is interested in purchasing a state-of-the-art packagingmachine for its manufacturing plant. The new machine has been designed tobasically eliminate all errors and defects in the production process. The newmachine will cost P150,000, and have a salvage value of P70,000 at the endof its seven-year useful life. Priscila Eunice has determined that cash inflowsfor years 1 through 7 will be as follows: P32,000; P57,000; P15,000;P28,000; P16,000; P10,000; and P15,000 respectively. Maintenance will berequired in years 3 and 6 and at P10,000 and P7,000 respectively. PriscilaEunice uses a discount rate of 11 percent and wants projects to have apayback period of no longer than 5 years.Required:a.) Compute the net present value of the new machine.b.) Compute the firm's profitability index.c.) Compute the payback period.d.)Evaluate this investment proposal for Priscila Eunice Co.

Net present value is the difference between present value of all cash inflows and initial investment…

Answered: Priscila Eunice Co. is interested in…

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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Similar questions

A firm undertakes a five-year project that requires an initial capital investment of $125,000. The project is then expected to provide cash flow of $15,000 per year for the first two years, $55,000 in the third and fourth years, and $16,000 in the fifth year. The project has an end-of-life salvage value of $7,000.
Wildhorse Industries management is planning to replace some existing machinery in its plant. The cost of the new equipment and the resulting cash flows are shown in the accompanying table. The firm uses an 18 percent discount rate for projects like this. Should management go ahead with the project? Year 0 1 2 3 4 5 Cash Flow -$3,485,400 871,710 896,700 1,104,400 1,340,360 1,450,600 What is the NPV of this project? (Enter negative amounts using negative sign e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to O decimal places, e.g. 1,525.) The NPV is $
Mikas Hospital Ltd. is considering investing in a new production line for its pain-reliever medicine. The company has to invest in equipment which costs $2,500,000 and will be depreciated under the MACRS system for a 5-year asset class. It is expected to have a scrap value of $700,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. Mikas Hospital Ltd. expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000. The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new pain-reliever. Expected annual sales for the product in the first three years are $600,000 and $850,000…
1. A mechanical device will cost $30,000 when purchased. Maintenance will cost $2,000 each year. The device will generate revenues of $5,000 each year for five years. At the end of the fifth year, the salvage value of the device is $6,500. Draw and simplify the cash flow diagram. Calculate: (a) the present value and (b) the equivalent annual cost of the cash flows using a discount rate of 12%.
Beyer Company is considering buying an asset for $350,000. It is expected to produce the following net cash flows. Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a minus sign. Round your Payback Period answer to 2 decimal places.)
Torbet Fish Packing Company wants to accumulate enough money over the next 10 years to pay for the expected replacement of its digitalized, automated scaling machine. The new machine is expected to cost $150,000 in 10 years. Torbet currently has $13,000 that it plans to invest over the next 10 years to help pay for the new machine. Torbet wants to put away an equal, end-of-year amount into a sinking fund investment account at the end of each of the next 10 years. Earnings on all of the investments are expected to be 7 percent for the first five years and 9 percent thereafter. What equal, end-of-year amount must Torbet save each year over the next 10 years to meet these needs?
Read and analyze the problems carefully, and present complete cash flow diagrams as necessary and solutions.
The Martian Corporation, a space vehicle development company, is starting a new division that will develop the next-generation launch missile engine configuration. Use a hand application of the MIRR method to determine the EROR for the estimated net cash flows (in $1000 units) of $-60,000 in year 0, $15,000 in years 1 through 7, and $-1,000 in year 8. Assume a borrowing rate of 8% and an investment rate of 25% per year. The external rate of return is %.
For each of the following problems, (a) draw the cash flow diagram; (b) present clean and clear manual solutions to the problem; (c) highlight the final answer (only the final answer as required by the problem) by enclosing it within a box. An asset costs $20,000 today. If inflation is 6% per year and interest is 10% per year, what will be the appropriate future value of the machine adjusted for inflation in 5 years?
Maud Dib Intergalactic has a new project available on Arrakis. The cost of the project is $36,000 and it will provide cash flows of $19,800, $25,300, and $24,200 over each of the next three years, respectively. Any cash earned in Arrakis is "blocked" and must be reinvested in the country for one year at an interest of 3.5 percent. The project has a required return of 8.5 percent. What is the project's NPV?
IMPORTANT: PLEASE SAVE ALL YOUR HAND CALCULATIONS IN A FILE SO THAT YOU CAN SUBMIT THEM IF REQUIRED BY THE LECTURER. You are considering investing RM62000 in new equipment. You estimate that the net cash flows will be RM11000 during the first year, but will increase by RM2500 per year the next year and each year thereafter. The equipment is estimated to have a 8-year service life and a net salvage value of RM5200 at that time. Assume MARR of 7%. a Calculate the annual capital cost CR (ownership cost) for the equipment. b.Determine the equivalent annual revenue. c.Is this a wise investment? Y/N. Submit Format: 7882 Format: 36630 Format: A
Torbet Fish Packing Company wants to accumulate enough money over the next 12 years to pay for the expected replacement of its digitalized, automated scaling machine. The new machine is expected to cost $240,000 in 12 years. Torbet currently has $15,000 that it plans to invest over the next 12 years to help pay for the new machine. Torbet wants to put away an equal, end-of-year amount into a sinking fund investment account at the end of each of the next 12 years. Earnings on all of the investments are expected to be 8 percent for the first six years and 10 percent thereafter. What equal, end-of-year amount must Torbet save each year over the next 12 years to meet these needs? Use Table I and Table III or a financial calculator to answer the question. Round your answer to the nearest dollar.

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