Rust Industrial Systems Company is trying to decide between two different conveyor beltsystems. System A costs $350,000, has a 4-year life, and requires $141,000 in pretaxannual operating costs. System B costs $430,000, has a 6-year life, and requires$135,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Whichever project ischosen, it will not be replaced when it wears out. The tax rate is 22 percent and thediscount rate is 8 percent. Calculate the NPV for both conveyor belt systems. (Anegative answer should be indicated by a minus sign. Do not round intermediatecalculations and round your answers to 2 decimal places, e.g., 32.16.)System ASystem BWhich conveyor belt system should the firm choose?○ System BO System A

Net Present Value is used to evaluate the investment and financing decisions that involve cash flows…

Answered: Rust Industrial Systems Company is…

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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Chadron Sports is considering adding a miniature golf course to its facility. The course would cost $138,000, would be depreciated on a straight-line basis over its five-year life, and would have a zero salvage value. The estimated income from the golfing fees would be $72,000 a year with $24,000 of that amount being variable cost. The fixed cost would be $11,600. In addition, the firm anticipates an additional $14,000 in revenue from its existing facilities if the golf course is added. The project will require $7,000 of net working capital, which is recoverable at the end of the project. What is the net present value of this project at a discount rate of 12 percent and a tax rate of 34 percent? O $14,438.78 $12,708.48 O $11,757.49 O $10,631.16 O $14,900.41
Peyton Manufacturing is trying to decide between two different conveyor belt systems. System A costs $260,000, has a four-year life, and requires $80,000 in pretax annual operating costs. System B costs $366,000, has a six-year life, and requires $74,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Whichever system is chosen, it will not be replaced when it wears out. The tax rate is 25 percent and the discount rate is 9 percent. Calculate the NPV for both conveyor belt systems. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g.. 32.16.) System A System B Which conveyor belt system should the firm choose? O System A O System B 4
An oil refinery finds that it is necessary to treat the waste liquids from a new process before discharging them into a stream. The treatment will cost $30,000 the first year, but process improvements will allow the costs alternative, an outside company will process the wastes for the fixed price of $15,000/year throughout the 15 year period, payable at the beginning of each year. Either way, there is no need to treat the wastes after 15 years. Use the annual worth method to determine how the wastes should be processed. The company's MARR is 12%. decline by $3,000 each year. As an Click the icon to view the interest and annuity table for discrete compounding when the MARR is 12% per year. The AW of the in-house treatment is S (Round to the nearest dollar) The AW of the outside treatment is S (Round to the nearest dollar.) The processing is the most economical alternative
Hagar Industrial Systems Company (HISC) is trying to decide between two different conveyor belt systems. System A costs $290,000; has a four-year life and requires $89,000 in pretax annual operating costs. System B costs $ 410,000; has a six-year life and required requires $79,00 in pretax operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Whichever system is chosen, it will not be replaced when it wears out. If the tax rate is 34 percent and the discount rate is 7.5 percent, which system should the firm choose?
A utility company is considering adding a second feedwater heater to its existing system unit to increase the efficiency of the system and thereby reduce fuel costs. The 150-MW unit will cost $1,650,000 and has a service life of 25 years. The expected salvage value of the unit is considered negligible. With the second unit installed, the efficiency of the system will improve from 55% to 56%. The fuel cost to run the feedwater is estimated at $0.05 kWh. The system unit will have a load factor of 85%, meaning that the system will run 85% of the year. Determine the equivalent annual worth of adding the second unit with an interest rate of 12%. Oa) $1,603,098 b) $12,573,321 Oc) $1,813,473 d) None of these
You are evaluating two different silicon wafer milling machines. The Techron I costs $267,000, has a three-year life, and has pretax operating costs of $72,000 per year. The Techron II costs $465,000, has a five-year life, and has pretax operating costs of $45,000 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $49,000. If your tax rate is 23 percent and your discount rate is 13 percent, compute the EAC for both machines
You are evaluating two different silicon wafer milling machines. The Techron I costs $270,000, has a three - year life, and has pretax operating costs of $73, 000 per year. The Techron II costs $470,000, has a five-year life, and has pretax operating costs of $46, 000 per year. For both milling machines, use straight - line depreciation to zero over the project's life and assume a salvage value of $50,000. If your tax rate is 25 percent and your discount rate is 9 percent, compute the EAC for both machines.
I do not understand the PV and cannot find the appropriate table for this?
ABC company is considering replacing their old manual loading machine with an automatic loading machine. The manual machine cost $300,000 three years ago, and is being depreciated over 10 years straight line depreciation, with no salvage value. If ABC replaces the manual machine, the new automatic machine will cost $400,000 and have a useful life of 10 years. This will also be depreciated on a straight line basis to zero. As a result of this new machine, there will be pretax savings of $130,000 in labour costs and $25,000 in other cash expenses annually. If the automatic machine is purchased, the old machine will immediately be sold at a price of $280,000. The company has already spent $15,000 researching the costs associated with this decision. The company's tax rate is 40% and no inflation is expected. The company's cost of capital is 7%. Calculate the net present value of this decision using a financial calulator
The production manager on the Ofon Phase 2 offshore platform operated by Total S.A. must purchase specialized environmental equipment or an equivalent service. The first cost is $250,000 with an AOC of $66,000. The manager has let it be known that he does not care about the salvage value because he thinks it will make no difference in the decision-making process. His supervisor estimates the salvage might be as high as $100,000 or as low as $10,000 in 3 years, at which time the equipment will be unnecessary. Alternatively, a subcontractor can provide the service for $165,000 per year. The total offshore project MARR is 13% per year. Determine if the decision to buy the equipment is sensitive to the salvage value. The annual worth of high salvage value is $______________ 142,525 incorrect.. The annual worth of low salvage value is $_______________ 168,940 incorrect.. Decision is sensitive…
Sheep Ranch Golf Academy is evaluating new golf practice equipment. The "Dimple- Max" equipment costs $110,000, has a 4-year life, and costs $9,100 per year to operate. The relevant discount rate is 12 percent. Assume that the straight-line depreciation method is used and that the equipment is fully depreciated to zero. Furthermore, assume the equipment has a salvage value of $8,300 at the end of the project's life. The relevant tax rate is 24 percent. All cash flows occur at the end of the year. What is the equivalent annual cost (EAC) of this equipment? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) EAC

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