The consulting company Harris White & Jackson (H W J) is in that never-ending budgeting phase of the year. Realizing that theycouldn't defer a technology update any longer, the managers plan to replace all of the computers in the office. The old computers willbe sold for market value. When the new computers reach the end of their useful lives, they will be sold as well. The cost of thecombined new computers and annual software updates should be more than covered by efficiency gains and increased volume of sales- at least that's what the managers are expecting. Information related to this investment is as follows.Cost of new computersSalvage value of new computers at end of useful lifeLife of new computers (years)Market value of old computers today (equal to book value)Annual software update cost (necessary for all computers, old or new)Annual operating cash inflows from efficiency gains and increased sales due to new computersMinimum required rate of returnApplicable tax rate$25,400$2,400Click here to view the factor tableDetermine if this investment makes sound financial sense for this company by completing the following.5$2,000$3,200$9,5005%24% (b)* Your answer is incorrect.Calculate the IRR for this investment. (Round answer to 2 decimal places, e.g. 15.25%.)IRRSave for Later4.07 %Attempts: 1 of 2 usedSubmit Answer

IRR is a capital budgeting techniques which help in decision making on the basis of future cash…

Answered: The consulting company Harris White &…

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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Your team has been asked to select the site for a new plant. Just 15 minutes before the presentation to management, you find a possible mistake in the numbers, putting the cost 10% over budget. You don’t have time to recheck all the figures, so you’re tempted to go ahead without mentioning it. Since many projects run over their original estimates, you can probably work the extra cost into the budget later. What should you do?
A large city in the midwest needs to acquire a street-cleanıng machine to keep its roads looking nice year round A used cleaning vehicle will cost $75,000 and have a $20,000 market (salvage) value at the end of its five-year Iife. A new system with advanced features will cost $150,000 and have a $50,000 market value at the end of its five-year life. The new system is expected to reduce labor hours compared with the used system. Current street-cleaning activity requires the used system to operate 8 hours per day for 20 days per month Labor costs $40 per hour (including fringe benefits), and MARR is 12% per year compounded monthly a. Find the breakeven percent reduction in labor hours for the new system b. If the new system is expected to be able to reduce labor hours by 20% compared with the used system, which machine should the city purchase? a. The breakeven reduction in lebor hours for the new system is ________% (Round to one decimal place)
Your firm is contemplating the purchase of a new $1,200,000 computer- based order entry system. The system will be depreciated straight-line to zero over its 10 (ten-) year life. It will be worth $100,000 at the end of that time. You will save $400,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $120,000 (this is a 1 (one) time reduction). If the tax rate is 25 percent and discount rate is 10%, what is the NPV for this project?
Your firm is contemplating the purchase of a new $540,000 computer - based order entry system. The system will be depreciated straight - line to zero over its five - year life. It will be worth $52, 000 at the end of that time. You will save $300,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $67,000 (this is a one - time reduction). If the tax rate is 23 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Margaret is working on the budgeted fixed-MOH rate for the upcoming year. Her company has recently purchased some new equipment to increase its capacity. If all resources are in place and everything runs perfectly, the production department can generate 540 units per hour, 24 hours a day, 365 days a year. More realistically, however, the plant will shut down completely for 10 full days a year to observe national holidays, while maintenance and other down time will consume 3 hours of each day, with output being closer to 495 units per hour. Calculate Margaret's theoretical and practical capacity for next year. If budgeted fixed-MOH costs are expected to be $3,060,000, what will the fixed-MOH rate be for the theoretical level? The practical level? (Round per unit answers to 2 decimal places, e.g. 15.25.) Theoretical level Practical level Theoretical level Practical level $ $ Capacity Levels units units Budgeted Fixed-MOH Rate per units per units
Analyze the following statement: Modernize the equipment without restructuring the line. This would keep one line in the traditional mode. Since we have modernized our other lines, this is currently our "oldest" line. It has the largest incidence of equipment problems. At an installed cost of $250,000 for new equipment, we can reduce our annual maintenance costs by $35,000. More importantly, productivity should increase by 5% without any increase in operating costs. The line produces nearly 800,000 units per year with a direct manufacturing cost of $5.40 (excluding materials). Although this revamping will extend the life of the line for only ten years, it is unlikely that we can put it off for more than 2 years.
Your firm is contemplating the purchase of a new $575,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $59,000 at the end of that time. You will save $265,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $74,000 (this is a one-time reduction). If the tax rate is 21 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) IRR %
Whispering Winds Company manufactures automobile components for the worldwide market. The company has three large production facilities in Virginia, New Jersey, and California, which have been operating for many years. Brett Harker, vice president of production, believes it is time to upgrade operations by implementing computer-integrated manufacturing (CIM) at one of the plants. Brett has asked corporate controller Connie Carson to gather information about the costs and benefits of implementing CIM. Carson has gathered the following data: Initial equipment cost $ 6,174,000 Working capital required at start-up $ 600,000 Salvage value of existing equipment 76,350 Annual operating cost savings 855,120 Salvage value of new equipment at end of its useful life 203,600 Working capital released at end of its useful life 600,000 Useful life of equipment 10 years Whispering Winds Company uses a 12% discount rate. Click here to view the factor table $ $ $ $
Your firm is contemplating the purchase of a new $515,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $53,000 at the end of that time. You will save $153,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $78,000 (this is a one-time reduction). If the tax rate is 21 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) IRR %
An officer for a large construction company is feeling nervous. The anxiety is caused by a new excavator just released onto the market. The new excavator makes the one purchased by the company a year ago obsolete. As a result, the market value for the company’s excavator has dropped significantly, from $600,000 a year ago to $50,000 now. In ten years, it would be worth only $3,000. The new excavator costs only $950,000 and would increase operating revenues by $90,000 annually. The new equipment has a ten-year life and expected salvage value of $175,000. The tax rate is 35%, the CCA rate, 25% for both excavators, and the required rate of return for the company is 14%. What is the NPV of the new excavator?
After you prepared the operating budget for the first quarter, Lockden learned that one of the two molding machines used by the company needs a major overhaul soon. Since the company is considering cost reduction strategies in response to the economic uncertainty, this news was unfavorable. But Lockden realized that the overhaul is important and has decided to do the overhaul during the first quarter of 2020. The overhaul will cost US$100,000,7 and the machine will not be operational during the overhaul (i.e., the entire duration of the first quarter). The company is exploring the viability of the following options to handle this operational challenge: Option 1: Lockitt, Inc. will run the functional molding machine two shifts per day, instead of one. Since LB075 labor is paid hourly, this proposal will not change the labor hours required. But the company must pay a higher wage rate to the employees in the second shift, causing the average LB075 rate to increase to $45 per hour.…
Your firm is contemplating the purchase of a new $435,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 6-year life. It will be worth $54,000 at the end of that time. You will save $157,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $43,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. If the tax rate is 23 percent, what is the IRR for this project? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. IRR 25.73 %

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