QBS company wishes to replace its current equipment that was purchased 8years ago with the newer technology. System A will have a first cost of P1.6M, an operating cost of P70,000 per year, and a salvage value of P400,000 after its 4-year life. System B will have a first cost of P2.1M, an operating cost of P50,000 the first year with an expected increase of P3,000 per year thereafter, and no salvage value after its 8-year life. On the basis of a future worth analysis at an interest rate of 12% per year, write the ANSWER for ALTERNATIVE A: Blank 1 ANSWER for ALTERNATIVE B: Blank 2

QBS company wishes to replace its current equipment that was purchased 8years ago with the newer technology. System A will have a first cost of P1.6M, an operating cost of P70,000 per year, and a salvage value of P400,000 after its 4-year life. System B will have a first cost of P2.1M, an operating cost of P50,000 the first year with an expected increase of P3,000 per year thereafter, and no salvage value after its 8-year life. On the basis of a future worth analysis at an interest rate of 12% per year, write the ANSWER for ALTERNATIVE A: Blank 1 ANSWER for ALTERNATIVE B: Blank 2

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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Heidi Company is considering the acquisition of a machine that costs $401,000. The machine is expected to have a useful life of 6 years, a negligible residual value, an annual net cash inflow of $128,000, and annual operating income of $88,392. The estimated cash payback period for the machine is (round to one decimal point)? a.5.5 years b.4.5 years c.4.0 years d.3.1 years
Rundle Airline Company is considering expanding its territory. The company has the opportunity to purchase one af two different used airplanes. The first airplane is expected to cost $14,280,000; it will enable the company to increase its annual cash inflow by $6,800,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane costs $33,840,000; it will enable the company to increase annual cash flow by $9,400,000 per year. This plane has an eight-year useful life and a zero salvage value. Required a. Determine the payback period for each investment alternative and identify the alternative Rundle should accept if the decision is based on the payback approach. (Round your answers to 1 decimal place.) Payback Period a-1. Alternative 1 (First plane) years Alternative 2 (Second plane) years a-2. Rundle should accept alternative 1
the to be In 2 years, XYZ is considering buying a new, high efficiency interception system. The new system would be purchased today for $46,500.00. It would be depreciated straight-line to $0 over 2 years. system would be sold for an after-tax cash flow of $14,700.00. Without the system, costs are expected to be $100,000.00 in 1 year and $100,000.00 in 2 years. With the system, $79,700.00 in 1 year and $67,000.00 in 2 years. If the tax rate is 48.30% and the cost of capital is 8.30%, what is the net present value of the new interception system project? costs are expected O $13344.34 (plus or minus $50) O $14279.01 (plus or minus $50) O $10213.60 (plus or minus $50) O $11718.49 (plus or minus $50) None of the above is within $50 of the correct answer
B2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $360,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 144,000 units of the equipment’s product each year. The expected annual income related to this equipment follows. Compute the (1) payback period and (2) accounting rate of return for this equipment. Check (1) 5.39 years, (2) 20.42% Sales . $225,000 Costs Materials, labor, and overhead (except depreciation on new equipment) . 120,000 Depreciation on new equipment 30,000 Selling and administrative expenses 22,500 Total costs and expenses 172,500 Pretax income 52,500 Income taxes (30%) . 15,750 Net income . $ 36,750
Bunnings Ltd is considering to invest in one of the two following projects to buy a new equipment. Each equipment will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 8%. The cash flows of the projects are provided below. Equipment 1 Equipment 2 Cost $186000 $195000 Future Cash Flow Year 1 86000 97000 Year 2 93000 84000 Year 3 83000 86000 Year 4 75000 75000 Year 5 55000 63000 Required:a) Identify which option of equipment should the company accept based on Profitability Index? b) Identify which option of equipment should the company accept based on discounted pay back method if the payback criterion is maximum 2 years?
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Aasim Corporation has an opportunity to invest in a machine to manufacture soft drinks for period of five years. The price of the machine is Tk. 500,000 and its economic life is eight years. The machine is expected to be sold at the end of project life (after five years) of the machine for tk. 140,000. The machine will be depreciated by the straight-line methods for eight years. The machine will produce 20,000 units of soft drinks each year. The selling price of each unit soft drink is tk. 20 and the production cost is tk. 7 per unit during the project life. The corporate Tax rate is 30% in each economic year. The company has already spent tk. 80,000 for the feasibility study of the project and initial working capital investment tk. 25000 recoverable at the end of the project. The company plans for 30% debt financing issuing 13%bond, and remaining will be equity financing. The company is listed in Chittagong Stock Exchange (CSE) and the outstanding shares of the company are trading at…
Candlex Ltd Co is appraising an investment project which has an expected life of four years and which will not be repeated. The initial investment, payable at the start of the first year of operation, is K5 million. Scrap value of K500, 000 is expected to arise at the end of four years. There is some uncertainty about what price can be charged for the units produced by the investment project, as this is expected to depend on the future state of the economy. The following forecast of selling prices and their probabilities has been prepared: Future economic state Weak Medium Strong Probability of future economic state 35% 50% 15% Selling price in current price terms K25 per unit K30 per unit K35 per unit These selling prices are expected to be subject to annual inflation of 4% per year, regardless of which economic state prevails in the future. Forecast sales and production volumes, and total nominal variable costs, have already been forecast, as follows: Year…
Terminal Ltd purchased a machine at R80 000 two years ago. This machine can be replaced with a new machine at a cost of R100 000. The new machine can be sold for R30 000 after completion of a 5-year project. The old machine can be sold for R15 000 today. The SARS capital allowance on both machines is calculated at 20% per year. Net working capital will decrease with R1 500 at the end of the project life. Assume a tax rate of 28%. What is the net cash flow of the project in year 5? R20 100 R21 600 R30 000 R28 500 R8 400
McKim Company is considering acquiring a manufacturing plant. The purchase price is $1,000,000. The owners believe the plant will generate net cash inflows of $314,000 annually. It will have to be replaced in 6 years. Use the payback method to determine whether McKim Company should purchase this plant. Round to one decimal place. Select the formula, then enter the amounts to calculate the payback period for the plant. (Round payback to one decimal place, X.X.) = Payback years
Skysong is contemplating a capital project costing $34838. The project will provide annual cost savings of $12800 for 3 years and have a salvage value of $4000. The company's required rate of return is 10%. The company uses straight-line depreciation. Present Value PV of an Annuity Year of 1 at 10% of 1 at 10% 1 2 3 This project is 0.909 0.826 0.751 0.909 1.736 2.487 unacceptable because it has a negative NPV. acceptable because it has a zero NPV. acceptable because it has a positive NPV. unacceptable because it earns a rate less than 10%.

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