QUESTION 1 Agro Tech Corporation is considering investing in a new IT system for selling to its clients. The company has identified two new possible systems, which would be suitable for its customers. Only one of the systems can be selected and the directors are looking for guidance on which system would be the best. The company requires a 15% rate of return on projects of this nature. The installation cost per project will be R100 000 each, while systems can be disposed for R200 000 each after five- years life span. Cash flows for Agro Tech Corporation: IT System (Rands) PERIOD 1 3 5 SYSTEM A -4 000 000 R1 800 000 R1 700 000 R1 600 000 R1 500 000 R1 400 000 SYSTEM B -3 500 000 1 500 000 1 500 000 1 500 000 1 400 000 R1 300 000 Required: 1.1 Determine the payback period in years, months and days for both systems 1.2 Based on your calculations in 1.1, which system should Agro Tech Corporation consider? Why? 1.3 Calculate the Net Present Value for both systems.

QUESTION 1 Agro Tech Corporation is considering investing in a new IT system for selling to its clients. The company has identified two new possible systems, which would be suitable for its customers. Only one of the systems can be selected and the directors are looking for guidance on which system would be the best. The company requires a 15% rate of return on projects of this nature. The installation cost per project will be R100 000 each, while systems can be disposed for R200 000 each after five- years life span. Cash flows for Agro Tech Corporation: IT System (Rands) PERIOD 1 3 5 SYSTEM A -4 000 000 R1 800 000 R1 700 000 R1 600 000 R1 500 000 R1 400 000 SYSTEM B -3 500 000 1 500 000 1 500 000 1 500 000 1 400 000 R1 300 000 Required: 1.1 Determine the payback period in years, months and days for both systems 1.2 Based on your calculations in 1.1, which system should Agro Tech Corporation consider? Why? 1.3 Calculate the Net Present Value for both systems.

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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Background Hyde Park Technologies Pty Ltd (HPT), a medium-sized enterprise with a turnover of $100 million per year is considering the purchase of an ERP system. As they have an urgent need to update their accounting system, they plan on purchasing an ERP financial module as the first step and then over time, they plan on integrating this module as part of a larger ERP rollout through the company. Eileen Dover, the CEO of HPT recently issued a request for proposal (RFP) to a number of ERP vendors. To assist the vendors in the preparation of their responses, Eileen has provided the following information: . HPT was founded by Eileen's father (Hans Dover) in 1986. Even though Hans is now in his 70s, he still plays an important figurehead role in the company and will have influence in the choice of vendor. Eileen has emphasised that whilst the presentation materials be to a high professional standard, it is imperative that they clearly and simply articulate the "Hansefits" of the new…
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Pollution Busters Inc. is considering a purchase of 10 additional carbon Pollution Busters Inc. is considering a purchase of 10 additional sequesters for $100,000 apiece. The sequesters last for only 1 year before becoming saturated. Then the carbon is sold to the government.a. Suppose the government guarantees the price of carbon. At this price, the payoff after 1 year is $115,000 for sure. What is the opportunity cost of capital for this investment?a. U.S. Treasuries with 1 year to maturityb. U.S. Treasuries with 2 year to maturityc. U.S. Treasuries with 3 year to maturityb-1. Suppose instead that the sequestered carbon has to be sold on the London Carbon Exchange. Carbon prices have been extremely volatile, but Pollution Busters’ CFO learns that average rates of return from investments on that exchange have been about 20%. She thinks this is a reasonable forecast for the future. What is the opportunity cost of capital in this case ?Opportunity cost of Capital is ___ %b-2. Is the…
2. Switching to powder coating technology will reduce the emission of volatile organic carbons (VOCs) for a firm's production process. The initial cost is $300,000 with annual costs of $35,000 and savings of $80,000 per year. The salvage value 10 years from now is projected to be $75,000. What rate of return will the firm make on this investment? Round your answer to the nearest .01 percent.
Q.3 (x1=70000 x2=10%) The IPS company has installed a system to help reduce the number of defective products. The capital investment in the system is $X1, and the projected annual savings are tabled below. The system's market value at the EOY five is negligible, and the MARR is x2% per year A. What is the FW of this investment? Based on econonical deciston rule, is this a good investment. b. What is the IRR of the system? Based on economical decision rule, is this a good investmentr. C. What is the discounted pavback period for this investment.
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Q4 Cuci Kereta Sdn Bhd is evaluating two alternatives: the purchase of an automatic washing system or a semi-automatic washing system. One person will operate the automatic washing machine. On the other hand, the semi-automatic washing system require two workers to operate the system. Table 4 shows the system information. The company estimate 3,000 cars can be washed per year with expected rate of return of 10% per year Evaluate this option with suitable graph for recommendation to the company whether to purchase an automatic or a semi-automatic washing system. Table 4: System Information Semi-automatic Washing System Automatic Washing System First Cost 110,000 20,000 (RM) Salvage (RM) 25,000 3,000 Life 10 (years) Labour Cost 10 10 (RM per hour per person) Wash Car 12 (units per hour) 4,000 for first year and increase 2,000 every year Maintenance Cost 1,500 (RM per year)
A pipeline engineer working in Kuwait for the oil giant BP wants to perform a present worth analysis on alternative pipeline routings—the first predominately by land and the second primarily undersea. The undersea route is more expensive initially due to extra corrosion protection and installation costs, but cheaper security and maintenance reduces annual costs. Use Present Worth Analysis with a MARR = 10% to determine which route should be selected.
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13. The replacement chain approach - Evaluating projects with unequal lives Aa Aa Evaluating projects with unequal lives Your company is considering starting a new project in either France or Mexico-these projects are mutually exclusive, so your boss has asked you to analyze the projects and then tell her which project will create more value for the company's stockholders. The French project is a six-year project that is The Mexican project is only a three-year project; however, your expected to produce the following cash flows: company plans to repeat the project after three years. The Mexican project is expected to produce the following cash flows: Project: French Year 0: -$650,000 Project: Mexican Year 1: $220,000 Year 0: -$475,000 Year 2: $240,000 Year 1: $225,000 Year 3: $245,000 Year 2: $235,000 Year 4: $270,000 Year 3: $255,000 Year 5: $120,000 Year 6: $100,000 Because the projects have unequal lives, you have decided to use the replacement chain approach to evaluate them. You…

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