Problem 10-30 Break-Even Replacement [LO2] Light emitting diode (LED) light bulbs have become required in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent light bulb costs $.50 and lasts for 1,000 hours. A 15-watt LED, which provides the same light, costs $3.65 and lasts for 12,000 hours. A kilowatt-hour is 1,000 watts for 1 hour. Suppose you have a residence with a lot of incandescent bulbs that are used on average 500 hours a year. The average bulb will be about halfway through its life, so it will have 500 hours remaining (and you can't tell which bulbs are older or newer). If you require a return of 9 percent, at what cost per kilowatt-hour does it make sense to replace your incandescent bulbs today? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 6 decimal places, e.g., 32.161616.) Break-even cost $ -0.003974

Problem 10-30 Break-Even Replacement [LO2] Light emitting diode (LED) light bulbs have become required in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent light bulb costs $.50 and lasts for 1,000 hours. A 15-watt LED, which provides the same light, costs $3.65 and lasts for 12,000 hours. A kilowatt-hour is 1,000 watts for 1 hour. Suppose you have a residence with a lot of incandescent bulbs that are used on average 500 hours a year. The average bulb will be about halfway through its life, so it will have 500 hours remaining (and you can't tell which bulbs are older or newer). If you require a return of 9 percent, at what cost per kilowatt-hour does it make sense to replace your incandescent bulbs today? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 6 decimal places, e.g., 32.161616.) Break-even cost $ -0.003974

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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Problem 11-9 Calculating Break-Even [LO3] A project has the following estimated data: Price = $54 per unit; variable costs = $34 per unit; fixed costs = $17,000; required return = 15 percent; initial investment = $30,000; life = five years. a. Ignoring the effect of taxes, what is the accounting break-even quantity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the cash break-even quantity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What is the financial break-even quantity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) d. What is the degree of operating leverage at the financial break-even level of output? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) a. Accounting break-even quantity b. Cash break-even quantity c. Financial break-even quantity d. DOL
M10
Rahul
3 Book P10-17 Project Evaluation [LO1] Your firm is contemplating the purchase of a new $1,424,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $138,600 at the end of that time. You will be able to reduce working capital by $192,500 (this is a one-time reduction). The tax rate is 24 percent and your required return on the project is 18 percent and your pretax cost savings are $555,550 per year. a. What is the NPV of this project? rences NPV b. What is the NPV if the pretax cost savings are $400,000 per year? NPV
Problem 04.055 Continuous Compounding Because of a chronic water shortage in California, new athletic fields must use artificial turf or xeriscape landscaping. If the value of the water saved each month is $4,500, how much can a private developer afford to spend now on artificial turf provided he must recover his investment in 5 years. Use an interest rate of 11% per year, compounded continuously? The private developer can afford to spend $
Problem 9-20 Sensitivity Analysis (LO 3] We are evaluating a project that costs $2,160,000, has a 8-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 90,900 units per year. Price per unit is $38.91, variable cost per unit is $24.00, and fixed costs are $863,000 per year. The tax rate is 21 percent, and we require a return of 11 percent on this project. a. Calculate the base-case operating cash flow and NPV. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. What is the sensitivity of NPV to changes in the sales figure? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) c. If there is a 400-unit decrease in projected sales, how much would the NPV change? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)…
K Question 10 A company has two investment opportunities. Alternative 1 (Alt. 1) pays $9,000 (inflow) two years from now, and $20,000 (inflow) four years from now. Alternative 2 (Alt. 2) pays $6,000 (inflow) at the end of every year for five years. Interest is 5.93% compounded annually. Which is the preferable alternative? Round the values for PV to the nearest cent. TWO YEARS P/Y C/Y N I/Y PV PMT FV GA Alt. 1 = $ % Alt. 2 = $ SA FA FOUR YEARS % Write the Discounted Cash Flow (DCF) for Alt. 1 and Alt. 2. Enter positive values for Alt. 1, and Alt. 2, rounded to the nearest dollar. FIVE YEARS Choice Select an answer %
QS 25-15 (Algo) Keep or replace LO P5 Rory Company has an old machine with a book value of $83,000 and a remaining five-year useful life. Rory is considering purchasing a new machine at a price of $112,000. Rory can sell its old machine now for $89,000. The old machine has variable manufacturing costs of $39,000 per year. The new machine will reduce variable manufacturing costs by $15,600 per year over its five-year useful life. (a) Prepare a keep or replace analysis of income effects for the machines. (b) Should the old machine be replaced? Complete this question by entering your answers in the tabs below. Required A Required B Prepare a keep or replace analysis of income effects for the machines. Keep or Replace Analysis Revenues Sale of existing machine Costs Purchase of new machine Variable manufacturing costs Income (loss) Keep Replace Income Increase (Decrease) if replaced
Problem 9-21 Scenario Analysis [LO 3] We are evaluating a project that costs $2,190,000, has a 8-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 91,200 units per year. Price per unit is $38.97, variable cost per unit is $24.05, and fixed costs are $866,000 per year. The tax rate is 22 percent and we require a return of 11 percent on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within ±10 percent. Calculate the best-case and worst-case NPV figures. Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Best-case NPV Worst-case NPV
Exercise 12-2 Net Present Value Analysis [LO12-2] The management of Kunkel Company is considering the purchase of a $35,000 machine that would reduce operating costs by $8,500 per year. At the end of the machine's five-year useful life, it will have zero salvage value. The company's required rate of return is 16%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table. Required: 1. Determine the net present value of the investment in the machine. 2. What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the net present value of the investment in the machine. (Negative amount should be indicated by a minus sign. Use the appropriate table to determine the discount factor(s). Round your final answer to the nearest whole dollar amount.) Net present value
Calculating Flotation Costs [LO4] Suppose your company needs $24 million to build a new assembly line. Your target debt-equity ratio is .75. The flotation cost for new equity is 7 percent, but the flotation cost for debt is only 3 percent. Your boss has decided to fund the project by borrowing money because the flotation costs are lower and the needed funds are relatively small.a. What do you think about the rationale behind borrowing the entire amount?b. What is your company’s weighted average flotation cost, assuming all equity is raised externally?
Problem 9-16 Project Evaluation (LO2) Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap purification system for $20 million. The system will last 4 years. Do-It-Right sells a sturdier but more expensive system for $21 million, it will last for 6 years. Both systems entail $2 million in operating costs; both will be depreciated straight-line to a final value of zero over their useful lives; neither will have any salvage value at the end of its life. The firm's tax rate is 30%, and the discount rate is 13%. a. What is the equivalent annual cost of investing in the cheap system? Note: Do not round intermediate calculations. Enter your answer as a positive value. Enter your answer in millions rounded to 2 decimal places. b. What is the equivalent annual cost of investing in the more expensive system? A Note: Do not round intermediate calculations. Enter your answer as a positive value. Enter your answer in millions rounded to…

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