The Elberta Fruit Farm of Ontario is considering buying a cherry-picking machine to replace the part-time workers it usually hires to harvest its annual cherry crop. The machine shakes the cherry tree, causing the cherries to fall onto plastic tarps that funnel the cherries into bins. The company gathered the following information: a. The farm pays part-time workers $190,000 per year to pick the cherries. b. The cherry picker would cost $510,000, have a 10-year useful life with no salvage value, and be depreciated using the straight-line method. c. The cherry picker's annual out-of-pocket costs would be cost of an operator and an assistant, $92,000; insurance, $1,000; fuel, $9,000; and a maintenance contract, $12,000. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Calculate the annual savings in cash operating costs provided by the cherry picker. 2a. Compute the cherry picker's simple rate of return. 2b. Would Elberta Fruit Farm buy the cherry picker if its required rate of return is 8%? 3a. Compute the cherry picker's payback period. 3b. Would Elberta Fruit Farm purchase the cherry picker if it requires a payback period of nine years or less? 4a. Compute the cherry picker's internal rate of return. 4b. Does it appear the simple rate of return is an accurate guide in investment decisions? Complete this question by entering your answers in the tabs below. Required 1 Required 2A Required 2B Required 3A Required 3B Required 4A Calculate the annual savings in cash operating costs provided by the cherry picker. Annual savings in cash operating costs < Required 1 Required 2A > Required 4B
The Elberta Fruit Farm of Ontario is considering buying a cherry-picking machine to replace the part-time workers it usually hires to harvest its annual cherry crop. The machine shakes the cherry tree, causing the cherries to fall onto plastic tarps that funnel the cherries into bins. The company gathered the following information: a. The farm pays part-time workers $190,000 per year to pick the cherries. b. The cherry picker would cost $510,000, have a 10-year useful life with no salvage value, and be depreciated using the straight-line method. c. The cherry picker's annual out-of-pocket costs would be cost of an operator and an assistant, $92,000; insurance, $1,000; fuel, $9,000; and a maintenance contract, $12,000. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Calculate the annual savings in cash operating costs provided by the cherry picker. 2a. Compute the cherry picker's simple rate of return. 2b. Would Elberta Fruit Farm buy the cherry picker if its required rate of return is 8%? 3a. Compute the cherry picker's payback period. 3b. Would Elberta Fruit Farm purchase the cherry picker if it requires a payback period of nine years or less? 4a. Compute the cherry picker's internal rate of return. 4b. Does it appear the simple rate of return is an accurate guide in investment decisions? Complete this question by entering your answers in the tabs below. Required 1 Required 2A Required 2B Required 3A Required 3B Required 4A Calculate the annual savings in cash operating costs provided by the cherry picker. Annual savings in cash operating costs < Required 1 Required 2A > Required 4B
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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Question
Please from requirement 1 to 4b.
Transcribed Image Text:The Elberta Fruit Farm of Ontario is considering buying a cherry-picking machine to replace the part-time workers it usually hires to
harvest its annual cherry crop. The machine shakes the cherry tree, causing the cherries to fall onto plastic tarps that funnel the
cherries into bins. The company gathered the following information:
a. The farm pays part-time workers $190,000 per year to pick the cherries.
b. The cherry picker would cost $510,000, have a 10-year useful life with no salvage value, and be depreciated using the straight-line
method.
c. The cherry picker's annual out-of-pocket costs would be cost of an operator and an assistant, $92,000; insurance, $1,000; fuel,
$9,000; and a maintenance contract, $12,000.
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.
Required:
1. Calculate the annual savings in cash operating costs provided by the cherry picker.
2a. Compute the cherry picker's simple rate of return.
2b. Would Elberta Fruit Farm buy the cherry picker if its required rate of return is 8%?
3a. Compute the cherry picker's payback period.
3b. Would Elberta Fruit Farm purchase the cherry picker if it requires a payback period of nine years or less?
4a. Compute the cherry picker's internal rate of return.
4b. Does it appear the simple rate of return is an accurate guide in investment decisions?
Complete this question by entering your answers in the tabs below.
Required 1 Required 2A Required 2B Required 3A Required 3B Required 4A
Calculate the annual savings in cash operating costs provided by the cherry picker.
Annual savings in cash operating costs
< Required 1
Required 2A >
Required 4B
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