Q9 !Required informationLego Group in Bellund, Denmark, manufactures Lego toyconstruction blocks. The company is considering two methods forproducing special-purpose Lego parts. Method 1 will have aninitial cost of $360,000, an annual operating cost of $150,000,and a life of 3 years. Method 2 will have an initial cost of$660,000, an operating cost of $120,000 per year, and a 6-yearlife. Assume 9% salvage values for both methods. Lego uses anMARR of 12% per year.If the evaluation is incorrectly performed using the respective life estimates of 3and 6 years, will Lego make a correct or incorrect economic decision? Explainyour answer.The present worth of method 1 is $ 150000 and that of method 2 is $ 120000Method 1is selected.

Present value of annuity is the current value of the future payments that are calculated using the…

Answered: ! Required information Lego Group in…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 19P

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ces Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following: Machine A could be purchased for $69,000. It will last 10 years with annual maintenance costs of $2,200 per year. After 10 years the machine can be sold for $7,245. Machine B could be purchased for $57,500. It also will last 10 years and will require maintenance costs of $8,800 in year three, $11,000 in year six, and $13,200 in year eight. After 10 years, the machine will have no salvage value. Required: Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year. Ignore income tax considerations. Calculate the present value of Machine A & Machine B. Which machine Esquire should purchase? Note: Do not round intermediate calculations. Round your final answers to nearest whole dollar…
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You must analyze a potential new product—a caulking compoundthat Cory Materials’ R&D people developed for use in the residential constructionindustry. Cory’s marketing manager thinks the company can sell 115,000 tubes peryear at a price of $3.25 each for 3 years, after which the product will be obsolete. Therequired equipment would cost $150,000, plus another $25,000 for shipping and installation.Current assets (receivables and inventories) would increase by $35,000, while currentliabilities (accounts payable and accruals) would rise by $15,000. Variable cost perunit is $1.95, fixed costs (excluding depreciation) would be $70,000 per year, and fixedassets would be depreciated under MACRS with a 3-year life. (Refer to Appendix 12Afor MACRS depreciation rates.) When production ceases after 3 years, the equipmentshould have a market value of $15,000. Cory’s tax rate is 40%, and it uses a 10% WACCfor average-risk projects.a. Find the required Year 0 investment and the project’s annual…
Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following: Machine A could be purchased for $69,000. It will last 10 years with annual maintenance costs of $2,200 per year. After 10 years the machine can be sold for $7,245, Machine B could be purchased for $57,500. It also will last 10 years and will require maintenance costs of $8,800 in year three, $11,000 in year six, and $13,200 in year eight. After 10 years, the machine will have no salvage value. Required: Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year. Ignore income tax considerations. Calculate the present value of Machine A & Machine B. Which machine Esquire should purchase? Note: Negative amounts should be indicated by a minus sign. Do not round Intermediate calculations.…
You must analyze a potential new product—a caulking compound that Cory Materials’ R&D people developed for use in the residential construction industry. Cory’s marketing manager thinks the company can sell 115,000 tubes per year at a price of RM3.25 each for 3 years, after which the product will be obsolete. The required equipment would cost RM150,000, Variable costs would be RM1.60 per unit, fixed costs (exclusive of depreciation) would be RM80,000 per year, and the depreciation on the equipment is 20,000 per annum. Cory’s tax rate is 35%, and it uses a 9% WACC for average-risk projects. If the number of tubes produced declined by 30% from the expected level, by how much would the project's NPV change?
Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following: Machine A could be purchased for $33,000. It will last 10 years with annual maintenance costs of $1,100 per year. After 10 years the machine can be sold for $3,465. Machine B could be purchased for $27,500. It also will last 10 years and will require maintenance costs of $4,400 in year three, $5,500 in year six, and $6,600 in year eight. After 10 years, the machine will have no salvage value. Required: Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year. Ignore income tax considerations. Calculate the present value of Machine A & Machine B. Which machine Esquire should purchase?
Poly-Chem Plastics is considering two types of injection molding machines: hydraulic and electric. The hydraulic press (HP) will have a first cost of $605,000, annual costs of $200,000, and a salvage value of $70,000 after 5 years. Electric machine technology (EMT) will have a first cost of $800,000, annual costs of $122,000, and a salvage value of $130,000 after 5 years The ROR on the extra investment for the EMT alternative is
Micro Tek Inc. is considering an investment in new equipment that will be used to manufacture a smartphone. The phone is expected to generate additional annual sales of 4,000 units at $450 per unit. The equipment has a cost of $3,950,000, residual value of $50,000, and an 8-year life. The equipment can only be used to manufacture the phone. The cost to manufacture the phone follows: Cost per unit: Direct labor $20 Direct materials 205 Factory overhead (including depreciation) 39 Total cost per unit $264 Determine the average rate of return on the equipment. Round your answer to one decimal place.fill in the blank 1 %
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