Required informationDVH Technologies purchases several parts for the instruments it makes via a fixed-price contract of $162,000 per yearfrom a local supplier. The company is considering making the parts in-house through the purchase of equipment that wllhave a first cost of $232,0000 with an estimated salvage value of $30,000 after 5 years. The AOC is difficult to estimate,but company engineers have made optimistic, most likely, and pessimistic estimates of $67000, $85.000, and $120,000,respectively. The MARR Is 20% per year.Use factors to determine if the company should purchase the equipment under any of the AOC scenarios.The AW value for the optimistic scenario is $-and the company should make O the parts for the optimistic scenarioThe AW value for the most likely scenario is $-and the company should makeO the parts for the most likely scenarioThe AW value for the pessimistic scenario is $-and the company should purchasethe parts for the pessimistic scenario

Annual worth is the equivalent annual value of the net present value of the project. Annual worth =…

Required information DVH Technologies purchases several parts for the instruments it makes via a foxed price contract of $162.000 per year from a local supplier The company is considering making the parts in-house through the purchase of equipment that will have a first cost of $232,000 with an estimated salvage value of $30,000 after 5 years. The AOC is difficult to estimate, but company engineers have made optimistic, most likely, and pessimistic estimates of $67000, S85.000, and $120,000, respectively. The MARR is 20% per year. Use factors to determine if the company should purchase the equipment under any of the AOC scenaios The AW value for the optimistic scenario is $-| and the company should make the parts for the optimistic scenario The AW value for the most likely scenario is S- and the company should make the parts for the most likely scenario. The AW value for the pessimistic scenario is S- and the company should purchaseO the parts for the pessimistic scenario

Required information DVH Technologies purchases several parts for the instruments it makes via a foxed price contract of $162.000 per year from a local supplier The company is considering making the parts in-house through the purchase of equipment that will have a first cost of $232,000 with an estimated salvage value of $30,000 after 5 years. The AOC is difficult to estimate, but company engineers have made optimistic, most likely, and pessimistic estimates of $67000, S85.000, and $120,000, respectively. The MARR is 20% per year. Use factors to determine if the company should purchase the equipment under any of the AOC scenaios The AW value for the optimistic scenario is $-| and the company should make the parts for the optimistic scenario The AW value for the most likely scenario is S- and the company should make the parts for the most likely scenario. The AW value for the pessimistic scenario is S- and the company should purchaseO the parts for the pessimistic scenario

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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nitial investment at various sale prices Edwards Manufacturing Company (EMC) is considering replacing one machine with another. The old machine was purchased 3 years ago for an installed cost of $10,000. The firm is depreciating the machine under MACRS, using a 5-year recovery period. (See table Data table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year* Recovery year 3 years 5 years 7 years 10 years 1 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 5 12% 9% 9% 6 5% 9% 8% 7 9% 7% 8 4% 6% 9 6% 10 6%…
New-Project Analysis The president of MorChuck Enterprises has asked you to evaluate the proposed acquisition of a new chromatograph for the firm’s R&D department. The equipment’s basic price is $70,000, and it would cost another $15,000 to modify it for special use by your firm. The chromatograph, which falls into the MACRS 3-year class, would be sold after 3 years for $30,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. Use of the equipment would require an increase in net working capital (spare parts inventory) of $4,000. The machine would have no effect on revenues, but it is expected to save the firm $25,000 per year in before-tax operating costs, mainly labor. The firm’s marginal federal-plus-state tax rate is 25%. a. What is the Year-0 cash flow? b. What are the project recurring cash flows in Years 1, 2, and 3? c. What is the additional (non operating) cash flow in Year 3? d. If the project’s cost of capital is 10%, should the…
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New-Project Analysis The president of your company, MorChuck Enterprises, has asked you to evaluate the proposed acquisition of a new chromatograph for the firm's R&D department. The equipment's basic price is $63,000, and it would cost another $19,500 to modify it for special use by your firm. The chromatograph, which falls into the MACRS 3-year class, would be sold after 3 years for $26,800. The MACRS rates for the first three years are 0.3333, 0.4445 and 0.1481. (Ignore the half-year convention for the straight-line method.) Use of the equipment would require an increase in net working capital (spare parts inventory) of $2,320. The machine would have no effect on revenues, but it is expected to save the firm $19,960 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 25%. Cash outflows and negative NPV value, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest…
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Required information [The following information applies to the questions displayed below.] Beacon Company is considering automating its production facility. The initial investment in automation would be $11.45 million, and the equipment has a useful life of 9 years with a residual value of $1,100,000. The company will use straight- line depreciation. Beacon could expect a production increase of 46,000 units per year and a reduction of 20 percent in the labor cost per unit. Production and sales volume Sales revenue Variable costs Direct materials Direct labor Variable manufacturing overhead Total variable manufacturing costs Contribution margin Fixed manufacturing costs Net operating income Payback period Current (no automation) 87,000 units years Per Unit $92 $19 25 9 53 $39 Total $ ? ? $ 1,100,000 ? Proposed (automation) 133,000 units Per Unit $92 $19 ? 9 ? $44 Total $ ? 3. Determine the project's payback period. (Round your answer to 2 decimal places.) ? $ 2,330,000 ?
Required information [The following information applies to the questions displayed below.] Beacon Company is considering automating its production facility. The initial investment in automation would be $7.52 million, and the equipment has a useful life of 6 years with a residual value of $1,100,000. The company will use straight- line depreciation. Beacon could expect a production increase of 47,000 units per year and a reduction of 20 percent in the labor cost per unit. Production and sales volume Sales revenue Variable costs Direct materials. Direct labor Variable manufacturing overhead Total variable manufacturing costs Contribution margin Fixed manufacturing costs Net operating income Current (no automation) 81,000 Proposed (automation) 128,000 units units Net present value Per Unit $94 $ 17 30 9 56 $ 38 Total $ ? ? 1,240,000 ? Per Unit $94 $ 17 ? 9 ? $44 Total $? ? 2,200,000 ? Required: 5. Recalculate the NPV using a 9 percent discount rate. (Future Value of $1. Present Value of…
Required information [The following information applies to the questions displayed below] Beacon Company is considering automating its production facility. The initial investment in automation would be $6.20 million, and the equipment has a useful life of 5 years with a residual value of $1,100,000. The company will use straight- line depreciation. Beacon could expect a production increase of 31,000 units per year and a reduction of 20 percent in the labor cost per unit. Production and sales volume Sales revenue Variable costs Direct materials Direct labor Variable manufacturing overhead Total variable manufacturing costs Contribution margin Fixed manufacturing costs Net operating income Current (no automation) 88,000 units Net present value Per Unit $93 $16 12124 25 52 $ 41 Total $7 7 1,090,000 2 Proposed (automation) 119,000 units Per Unit $93 $ 16 7 11 ? $46 Total $7 7 2,280,000 2 Required: 5. Recalculate the NPV using a 9 percent discount rate. (Future Value of $1. Present Value of…
Required information [The following information applies to the questions displayed below.] Nick's Novelties, Inc., is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $300,000, have a fifteen-year useful life, and have a total salvage value of $30,000. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues $200, 000 Less operating expenses: Commissions to amusement houses $60,000 30,000 18,000 35,000 Insurance Depreciation Maintenance 143, 000 $ 57,000 Net operating income Required: 1a. Compute the payback period associated with the new electronic games. 1b. Assume that Nick's Novelties, Inc., will not purchase new games unless they provide a payback period of five years or less. Would the company purchase the new games?

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