Scenario: The production department is intending on acquiring a more energy-efficientmachine. The production manager has asked for your help with evaluating two alternativemachine models.Model 1: Requires initial investment of $80,000. The expected cash inflow for thefirst year is $26,000 and this is expected to grow at 2% per annum.Model 2: Requires initial investment of $120,000. The expected cash inflow for thefirst year is $38,000 and this is expected to grow at 2.5% per annum.The expected useful life of both machines are six years. The business requires a rate of returnof 10%.Create a new Excel workbook and complete the requirements below on one sheet. Presenteverything in a tidy and formatted manner.Requirements:Set up columns A and B for the input data and input relevant information from thescenario above.Calculate the following for Model 1 and Model 2 using cell references and functions (i.e., nohard coding):a. Projected future cash flowsb. Net present value (use the NPV function)c.Profitability index (compute as net present value over initial investment)d. Internal rate of return (use the IRR function)e. Payback periodInsert a text box below your completed analysis and comment on which model yourecommend the production manager acquire. (Maximum 150 words)

The term "payback period" refers to the number of years that must pass before the initial monetary…

Answered: Scenario: The production department is…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Consider a project to supply Detroit with 25,000 tons of machine screws annually for automobile production. You will need an initial $5,400,000 investment in threading equipment to get the project started; the project will last for 6 years. The accounting department estimates that annual fixed costs will be $1,300,000 and that variable costs should be $245 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 6-year project life. It also estimates a salvage value of $675,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $356 per ton. The engineering department estimates you will need an initial net working capital investment of $520,000. You require a return of 9 percent and face a tax rate of 21 percent on this project. Calculate the accounting, cash, and financial break-even quantities. (Do not round intermediate calculations and round your answers to the…
You are responsible to manage an IS project with a 4-year horizon. The annal cost of the project is estimated at $40,000 per year, and a one-time costs of $120,000. The annual monetary benefit of the project is estimated at $96,000 per year with a discount rate of 6 percent. a. Calculate the overall return on investment (ROI) of the project. b. Perform a break-even analysis (BEA). At what year does break-even occur?
Please tutor help me with this question
Cecil company is considering the of a new machine. The machine cost $227,500 and will generate a yearly cash inflow of $35,000. what is the payback period? Requirement: what is the payback period?
You are investigating the cost of project to renovate the kitchens in a large apartment building, the payments for this work will be $32,500 up front and $13500 a month for 8 months, followed by a completion payment of $31500. To start this project you will need to purchase equipment for $70,000 at the beginning of the project and you expect monthly materials and operating costs to be about $7,500. The Rate of Return is 12%. What is the total PV of the 8 monthly payments of $13500 per month. You should assume that the payments are made at the end months 1 through 8. (So this is a ordinary simple annuity). Round your answer to the nearest penny. Your Answer: Answer
You have been tasked with recommending one of the two investment projects for acceptance by your company. Project 1 costs $100,000 to implement today (it is a cost), it will bring subsequent positive cash flows of $50,000 at the end of year one; and subsequently $30,000; $45,000; $8,000. Project 2 initial cost is $14,000, and subsequent cash flows are $7,000 per year for 3 years. Your company is using WACC of14% for both projects. a. Calculate NPV and IRR for each project, and decide which one to recommend. b. Calculate MIRR for projects A and B. Which project would you recommend based on MIRR? c. Find the crossover rate. What does this rate represent? Describe in YOUR OWN words.
Can someone please help me solve this question using Excel?
If a garden center is considering the purchase of a new tractor with an initial investment cost of $117,000, and the center expects a return of $31,000 in year one, $22,000 in years two and three, $17,000 in years four and five, and $8,000 in year six and beyond, what is the payback period? fill in the blank 1 years
The production department is proposing the purchase of an automatic insertion machine. It has identified 3 machines, each with an estimated life of 10 years. Which machine offers the best internal rate of return? Annual net cash flows Average investment Machine A only Machine B only Machine C only O Machines A and B Machine A $ 50,000 250,000 Machine B $ 40,000 300,000 Machine $ 75,000 500,000
We project unit sales for a new household-use laser-guided cockroach search and destroy system as follows: Year 1 2 3 4 5 NPV Unit Sales 95,500 107,500 130,500 136,500 89,500 The new system will be priced to sell at $420 each. The cockroach eradicator project will require $1,900,000 in net working capital to start, and total net working capital will rise to 15% of the change in sales. The variable cost per unit is $290, and total fixed costs are $1,400,000 per year. The equipment necessary to begin production will cost a total of $17 million. This equipment is mostly industrial machinery and thus qualifies for CCA at a rate of 20%. In five years, this equipment will actually be worth about 20% of its cost. The relevant tax rate is 35%, and the required return is 18%. Based on these preliminary estimates, what is the NPV of the project? (Enter the answer in dollars. Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.)
Consider a project to supply Detroit with 27,000 tons of machine screws annually for automobile production. You will need an initial $6,000,000 investment in threading equipment to get the project started; the project will last for 6 years. The accounting department estimates that annual fixed costs will be $1,450,000 and that variable costs should be $275 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 6-year project life. It also estimates a salvage value of $825,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $392 per ton. The engineering department estimates you will need an initial net working capital investment of $580,000. You require a return of 11 percent and face a tax rate of 22 percent on this project. a-1. What is the estimated OCF for this project? (Do not round intermediate calculations. and round your answer to the nearest whole number,…
If a garden center is considering the purchase of a new tractor with an initial investment cost of $127,000, and the center expects a return of $31,000 in year one, $21,000 in years two and three, $15,000 in years four and five, and $12,000 in year six and beyond, what is the payback period? ______ years

SEE MORE QUESTIONS

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS