Q3.A construction company has bought a hoist for $ 70,000 and has a useful life of 4 years. The scrap value of this device is estimated at $ 30,000 after 4 years. The device is depreciated as a sum of years. Assuming the device has an annual revenue of $ 18,000, an inflation rate of 12 percent, a profit tax rate of 35 percent, and a minimum attractive company return rate of 18 percent considering inflation, is it justified to buy this device? Isit acceptable?

Q3.A construction company has bought a hoist for $ 70,000 and has a useful life of 4 years. The scrap value of this device is estimated at $ 30,000 after 4 years. The device is depreciated as a sum of years. Assuming the device has an annual revenue of $ 18,000, an inflation rate of 12 percent, a profit tax rate of 35 percent, and a minimum attractive company return rate of 18 percent considering inflation, is it justified to buy this device? Isit acceptable?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Suppose a business is considering the purchase of a $40,000 machine whose operation will result in increased sales of $30,000 per year and increased operating costs of $10,000; additional profits will be taxed at a rate of 50%. Depreciation is assumed to be taken on a straight-line basis over four years with no expected salvage value. What will happen to this project's real rate of return if inflation during the next four years is expected to be 10% compounded annually?
(a) New manufacturing equipment costs $225,000, salvage value is $25,000, and average annual earnings of $20,000 after taxes is expected. Find the average annual rate of return. If the earnings are doubled, then what is the rate?(b) Investment for new equipment is $100,000, and the salvage value is $10,000. Average yearly earnings from this equipment are $15,000 after taxes. What is the non-time-value-ofmoney return? When is the payback?
CC1 company is considering an investment (at time = 0) in a machine that produces arrows. The cost of the machine is 42205 dollars with zero expected salvage value. Annual production in units during the 3-year life of the machine is expected to be (starting at time = 1) 4046 , 7950, and 10350. The arrows sale price per unit is 13 dollars in year one and it is expected to increase by 6% per year thereafter. Production costs per unit will be 5 dollars in year one, and then increase by 4% per year. Depreciation on the machine is fixed at 14204 dollars per year, and the overall tax rate is 40%. and the minimum acceptable rate of return is 10% percent. Calculate the net present value of this investment. Assume all flows are at the end of each year. round your answer to the nearest cent.
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K Company has purchased a new machine costing $27,000 and the machine is expected to reduce the operating expenses by $7,000 every year. The useful life of machine is 5 years and the machine is expected to have a zero-scrap! value at the end of its useful life. The company's required rate of return is 12%. Calculate the Net Present Value (NPV) of the machine. (Round intermediate calculations to 3 decimal places and final answer to the nearest dollar.)
N9.
Godo
2. A firm is considering purchasing equipment that will reduce costs by P40,000. The equipment costs P300,000 and has a salvage value of P50,000 and a life of 7 years. The annual maintenance cost is P6, 000. While not in use by the firm, the equipment can be rented to others to generate an income of P10, 000 per year. If money can be invested for an 8 per cent return, is the firm justified in buying the equipment? a. Rate of Return Method Annual Worth Method b. c. Present Worth Method d. Future Worth Method
1.
K Company has purchased a new machine costing $27,000 and the machine is expected to reduce the operating expenses by $7,000 every year. The useful life of machine is 5 years and the machine is expected to have a zero-scrap value at the end of its useful life. The company's required rate of return is 12%. Calculate the Net Present Value (NPV) of the machine. (Round intermediate calculations to 3 decimal places and final answer to the nearest dollar.) -$1,765 $1765 -$464 $25,235
5. Does your company want to purchase this machine that will provide cost savings of $100,000 annually for its useful life (8 years)? The cost is $250,000; tax rate is 36% and discount rate is 14%. Compute straight-line depreciation for 8 years with zero salvage value. Calculate the cash flows and determine the NPV and IRR. Does your company want to buy this machine?
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