The engineering team at Manueľ's Manufacturing, Ic., is planning to purchase an enterprise resource planning (ERP) system. Thesoftware and installation from Vendor A costs $ 425,000 initially and is expected to increase revenue $ 105,000 per year every year.The software and installation from Vendor B costs $ 235,000 and is expected to increase revenue $ 105,000 per year. Manuel's uses a4-year planning horizon and a 13.0 % per year MARR.Part aWhat is the present worth of each investment?Vendor A: $Vendor B: $

Present worth of investment = Present value of increase in revenue - Initial costs where. Present…

Answered: The engineering team at Manueľ's…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Vandelay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $ 3,210,000 and will last for six years. Variable costs are 37 percent of sales, and fixed costs are $350,000 per year. Machine B costs $5,455,000 and will last for nine years. Variable costs for this machine are 32 percent of sales and fixed costs are $240,000 per year. The sales for each machine will be $12.4 million per year. The required return is 9 percent, and the tax rate is 24 percent. Both machines will be depreciated on a straight-line basis. The company plans to replace the machine when it wears out on a perpetual basis. Calculate the EAC for each machine.
The engineering team at Manuel’s Manufacturing, Inc., is planning to purchase an enterprise resource planning (ERP) system. The software and installation from Vendor A costs $380,000 initially and is expected to increase revenue $125,000 per year every year. The software andinstallation from Vendor B costs $280,000 and is expected to increase revenue $95,000 per year. Manuel’s uses a 4-year planning horizon and a 10%/year MARR. Solve, a. What is the future worth of each investment?b. What is the decision rule for determining the preferred investment basedon future worth ranking? c. Which (if either) ERP system should Manuel purchase?
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JD Sport is planning to construct a Tennis Sport Arena on which has 50 courts to be used at any point of time. The usage of the courts is expected to be 100%. The initial investment cost for the sport arena is USD600,000. It is expected to generate revenue USD3,000 per court in year 1 and 10% increase for every year from year 2 to 6. The operating cost per generator is USD1,000 and expected to increase by 10% every year from year 2 to 6. At year 6 it can cease the operation by selling the entire business for USD400,000. The cost of capital is expected to be about 12%. Advice whether the project is acceptable or rejected by using the below methods. Accounting Rate of Return (AROR) Payback Period Technique (PBP) Net Present Value Technique (NPV) Profitability Index (PI) What is the importance of the Technique used for analysis on Capital budgeting cost for a projects?
Evergreen company is investigating the feasibility of buying a new production line producing a new product. They project unit sales as in the below table, and they project price per unit to be $120 per unit at the beginning. And when competition catches up after 3 years (in the 4th year), they anticipate that the price would drop to $110. This project requires $20,000 in net working capital at the beginning. Subsequently, total net working capital at the end of each year would be about 15% of total sales for that year. The variable cost per unit is $60, and total fixed costs are $25,000 per year. It costs about $900,000 to buy the equipment necessary to begin production. This investment is primarily in industrial equipment and falls in Class 8 with a CCA rate of 20%. The equipment will actually be worth about $150,000 in eight years. The relevant tax rate is 40%, and the required return is 15%. Years Unit Sales 1 3000 2 5000 3 6000 4 6,500 5 6000 6 5000 7 4000 8 3000 Based on the…
Aria Acoustics, Incorporated (AAI), projects unit sales for a new 7-octave voice emulation implant as follows: Year Unit Sales 1 74,400 2345 79,800 85,400 82,700 69,500 Production of the implants will require $1,480,000 in net working capital to start and additional net working capital investments each year equal to 15 percent of the projected sales increase for the following year. Total fixed costs are $3,800,000 per year, variable production costs are $143 per unit, and the units are priced at $325 each. The equipment needed to begin production has an installed cost of $18,500,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as 7-year MACRS property. In five years, this equipment can be sold for about 20 percent of its acquisition cost. The tax rate is 23 percent and the required return is 17 percent. (MACRS schedule) a. What is the NPV of the project? (Do not round intermediate calculations and…
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Firm Z has invested $4 million in marketing campaign to assess the demand for a product Manish. This product will be in the market next year and will last five years. Revenues are projected to be $50 million per year along with expenses of $20 million. The firm spends $15 million immediately and equipment that will be depreciated using MACRS depreciation 20. Additionally, it will use some fully depreciated existing equipment that has a market value of $4 million. Finally, they will have no incremental cash or inventory requirements. But receivables are expected to account for 15% of annual sales. Payables are expected to be 15% of the annual cost of goods sold between year one and four. All accounts payables and receivables will be settled at the end of your five. Based on this information andCost of debt is 2.45%, cost of equity is 11%, cost of preferred stock is 5% and WACC is 5.42%., find the NPV of the project. Identify the IRR of the project. Will you accept this project? Why?…
DSSS CorporationDSSS Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is $135,000. The cost of shipping and installation is an additional $5,300. The asset will fall into the 3-year MACRS class. The year 1- 4 MACRS percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. Sales are expected to be $230,000 per year. Cost of goods sold will be 61% of sales. The project will require an increase in net working capital of $5,300. At the end of three years, DSSS plans on ending the project and selling the manufacturing equipment for $20,000. The marginal tax rate is 39% and DSSS Corporation’s appropriate discount rate is 15%. The fixed expenses is $12,000.Refer to DSSS Corporation. What is the operating cash flow for year 3? Group of answer choices $71,719 $20,778 $65,634 $55,501
DSSS CorporationDSSS Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is $135,000. The cost of shipping and installation is an additional $2,600. The asset will fall into the 3-year MACRS class. The year 1- 4 MACRS percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. Sales are expected to be $215,000 per year. Cost of goods sold will be 64% of sales. The project will require an increase in net working capital of $2,600. At the end of three years, DSSS plans on ending the project and selling the manufacturing equipment for $30,000. The marginal tax rate is 36% and DSSS Corporation’s appropriate discount rate is 12%. The fixed expenses is $12,000.Refer to DSSS Corporation. What is the initial investment outlay for this project? Group of answer choices $140200 $150,200 $35,000 $130,200
A process for producing the mosquito repellant Deet has an initial investment of $205,000 with annual costs of $51,000. Income is expected to be $90,000 per year. What is the payback period at /= 0% per year? At i=12% per year? (Note: Round your answers to the nearest integer.) The payback period at /= 0% is determined to be The payback period at /= 12% is determined to be years. years.

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