Question 5 Uranus Şdn. Bhd is a famous shoes manufacturer in Malaysia. Recently, the management is considering to replace its old processing machine with a new sophisticated model. The old machine is bought at RM48,000 six years ago and has two years remaining. If the company sell this machine, the salvage value is RM15,000. The new machine costs RM60,000 and has remaining life of 5 years. The management believes that the new machine can produce better quality product and can achieve higher customers' satisfaction. The usage of new machine is expected to increase revenue of RM12,000 per year. Besides, it can save annual operating cost as follows. Maintenance cost RM2,000 Defect cost Operating costs Old Machine New machine RM2,500 RM1,000 RM35,000 RM3,000 RM40,000 Both machines are depreciated using simplified straight line and assuming the book value is 0. The marginal tax rate is 28% and internal rate of return is 12%. i) Calculate project's initial outlay ii) Calculate annual cash flow iii) Calculate teminal cash flow iv) Determine NPV of the project. Decide whether the company should/should not replace the old machine.

Question 5 Uranus Şdn. Bhd is a famous shoes manufacturer in Malaysia. Recently, the management is considering to replace its old processing machine with a new sophisticated model. The old machine is bought at RM48,000 six years ago and has two years remaining. If the company sell this machine, the salvage value is RM15,000. The new machine costs RM60,000 and has remaining life of 5 years. The management believes that the new machine can produce better quality product and can achieve higher customers' satisfaction. The usage of new machine is expected to increase revenue of RM12,000 per year. Besides, it can save annual operating cost as follows. Maintenance cost RM2,000 Defect cost Operating costs Old Machine New machine RM2,500 RM1,000 RM35,000 RM3,000 RM40,000 Both machines are depreciated using simplified straight line and assuming the book value is 0. The marginal tax rate is 28% and internal rate of return is 12%. i) Calculate project's initial outlay ii) Calculate annual cash flow iii) Calculate teminal cash flow iv) Determine NPV of the project. Decide whether the company should/should not replace the old machine.

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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#3 Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube Goldberg Machines. This new equipment, the RGM-7000, will allow Caspian Sea Drinks to expand production. It will cost $15.00 million fully installed and will be fully depreciated over a 20 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $2.77 million per year and increased operating costs of $564,995.00 per year. Caspian Sea Drinks' marginal tax rate is 28.00%. If Caspian Sea Drinks uses a 12.00% discount rate, then the net present value of the RGM-7000 is _____. Answer format: Currency: Round to: 2 decimal places.
#34 Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube Goldberg Machines. This new equipment, the RGM-7000, will allow Caspian Sea Drinks to expand production. It will cost $15.00 million fully installed and will be fully depreciated over a 15 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $2.96 million per year and increased operating costs of $689,148.00 per year. Caspian Sea Drinks' marginal tax rate is 28.00%. The internal rate of return for the RGM- 7000 is Submit Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434)) unanswered not_submitted Attempts Remaining: Infinity
QUESTION 3 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $55. The production cost of each heater is $35. You are expecting to sell 9000 units per year. This project has an economic life of 6 years. The project requires an investment of $700000 in plants and equipment. This equipment will be depreciated to zero salvage value based on 5-year MACRS schedule. The depreciation rates from year 1 to 6 are 20 % ,32 %, 19.2 %, 11.52 %, 11.52 %, and 5.76 percent, respectively. The company will sell its old equipment for $100,000. The old machine is fully depreciated. The required rate of return for the project is 12 percent, the working capital requirement is 10 percent of the next year's sales revenue. The marginal corporate tax rate is 20 percent. At the termination of the project, the plant and equipment will be sold for an estimated value of $50000. Based on these assumptions, estimate the cash flow for capital expenditures.…
Scenario 1: Four years ago, The Kresser Sdn. Bhd. purchased an Industrial Shredder Machine. Because of increasing maintenance costs for this equipment, a new piece of machine is being considered for the assembly line. The cost characteristics of the defender (present machine) and the challenger are shown in Table 1 below: Table 1 Defender Original cost = RM9,000 Maintenance = RM500 in year one (four years ago) increasing by a uniform gradient of RM100 per year thereafter Market Value (MV) at end of life = 0 Original estimated life = 9 years Challenger Purchased cost =RM11,000 Maintenance = RM150 per year 2 Market Value (MV) at end of life = RM3,000 Estimated life = 5 years Suppose a RM6,000 Market value is available now for the defender. Perform a before- tax analysis, using before-tax MARR of 15%, to determine which alternative to select. Be sure to state all important assumptions you make, and utilize a uniform gradient in your analysis of the defender.
Question 07: Virat Kohli Welders is planning to replace an old machine with a new one to improve efficiency in its production process. The machine will increase the efficiency as it is more modern and will result in an incremental savings of $80,000 per year. The old machine was bought 3 years ago at a cost of $270,000. The new machine will cost $420,000. Both machines have useful lives of 6 years. The machines are depreciated to zero for tax purpose over the six-year life using a straight-line depreciation method. The tax rate is 34% and the required rate of return is 11%. The old machine has no salvage value at the end of its life but can be sold now at a cost of $100,000. The new machine will have a salvage value of $80,000 at the end of its life. Should the new machine be purchased?
Question 2 ElectroMotion Corp is an electric vehicle manufacturer that produces fuel-cell powered passenger cars and trucks. The company has developed a new production line machine that has considerably improved the efficiency of the firm's existing manufacturing process. The cost of buying the new machine is £20,000 irrespective from when you buy it, and its economic useful life is 3 years. The existing production line machine will last at most 2 more years. The annual operating costs of the two machines are given below. Old machine New machine Annual operating cost (£) Year 2 15,000 6,000 Year 1 10,000 4,000 The opportunity cost of capital is 10%. Year 3 N/A 8,000 a) When should the company replace the existing machine with a new one? b) Interpret your result in question (a).
13,000 6. The Imperial Chemical Company is considering purchasing a chemical analysis machine worth $13,000. Although the purchase of this machine will not produce any increase in sales revenues, it will result in a reduction of labour costs. In order to operate the machine properly, it must be calibrated each year. The machine has an expected life of 6 years, after which it will have no salvage value. The following table summarizes the annual savings in labour cost and the annual maintenance costs in calibration over 6 years: Year (n) Net Cash Flow ($) 0 Costs ($) Savings ($) -13,000 1 2,300 6,000 3,700 2 2,300 7,000 4,700 3 2,300 9,000 6,700 4 2,300 9,000 6,700 5 2,300 9,000 6,700 6 2,300 9,000 6,700 Find the internal rate of return for this project. [6]
39
# 35 Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube Goldberg Machines. This new equipment, the RGM-7000, will allow Caspian Sea Drinks to expand production. It will cost $15.00 million fully installed and will be fully depreciated over a 20 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $2.98 million per year and increased operating costs of $579,459.00 per year. Caspian Sea Drinks' marginal tax rate is 20.00%. If Caspian Sea Drinks uses a 9.00% discount rate, then the net present value of the RGM- 7000 is Submit Answer format: Currency: Round to: 2 decimal places. unanswered not_submitted Attempts Remaining: Infinity

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