management of Penfold Corporation is considering the purchase ofa machine that would cost $380,000, would last for 5 years, and would have no salvage value. The machine would reduce labor andother costs by $85,000 per year. The company requires a minimum pretax return of 13% on all investment projects.TheClick here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided.The net present value of the proposed project is closest to (Ignore income taxes.):Multiple Cholce$(81,055)$(6,055)$(166,055)$(379.997)Prev1 of 4Next >9:44 AMype here to search49°F Mostly sunny2010/19/2021DELLF11F12PrtScrInsertDeletePgUpPgDnHomeEndF3F4F5F6F7F8F9F10%24&NumLockBackspace大

Given information : Discount rate 13% Time period (years) 5 Cost lowering benefits $…

Answered: The management of Penfold Corporation…

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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The management of Arkansas Corporation is considering the purchase of a new machine costing $490,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability of this investment: Year Operating Income 1 2 3 4 5 $100,000 40,000 40,000 10,000 10,000 Net Cash Flow $180,000 120,000 100,000 90,000 120,000 The net present value for this investment is
Management of Carla Vista Mints, a confectioner, is considering purchasing a new jelly bean-making machine at a cost of $312,50O. They project that the cash flows from this investment will be $ 90,000 for the next seven years. If the appropriate discount rate is 14 percent, what is the NPV for the project? (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.) NPV %24
Melton Manufacturing Ltd is considering two alternative investment projects. The first project calls for amajor renovation of the company’s manufacturing facility. The second involves replacing just a fewobsolete pieces of equipment in the facility. The company will choose one project or the other this year,but it will not do both. The cash flows associated with each project appear below and the firm discountsproject cash flows at 10%.Year Renovate Replace0 –$4,000,000 –$1,300,0001 2,000,000 1,000,0002 2,000,000 700,0003 2,000,000 300,0004 2,000,000 150,0005 2,000,000 150,000 Calculate the profitability index (PI) of each project and based on this criterion, indicate whichproject you would recommend for acceptance.
Melton Manufacturing Ltd is considering two alternative investment projects. The first project calls for amajor renovation of the company’s manufacturing facility. The second involves replacing just a fewobsolete pieces of equipment in the facility. The company will choose one project or the other this year,but it will not do both. The cash flows associated with each project appear below and the firm discountsproject cash flows at 10%.Year Renovate Replace0 –$4,000,000 –$1,300,0001 2,000,000 1,000,0002 2,000,000 700,0003 2,000,000 300,0004 2,000,000 150,0005 2,000,000 150,000 Discuss the important elements to consider when deciding between these two projects.
Wildhorse Industries management is planning to replace some existing machinery in its plant. The cost of the new equipment and the resulting cash flows are shown in the accompanying table. The firm uses an 18 percent discount rate for projects like this. Should management go ahead with the project? Year 0 1 2 3 4 5 Cash Flow -$3,485,400 871,710 896,700 1,104,400 1,340,360 1,450,600 What is the NPV of this project? (Enter negative amounts using negative sign e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to O decimal places, e.g. 1,525.) The NPV is $
Pharoah Company is considering a long-term investment project called ZIP. ZIP will require an investment of $123,338. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $82,500, and annual cash outflows would increase by $41,250. The company's required rate of return is 12%. Click here to view the factor table. Calculate the internal rate of return on this project. (Round answers to O decimal places, e.g. 15%.) Internal rate of return on this project is between Determine whether this project should be accepted? The project be accepted. % and %.
Assume that a company is considering purchasing a machine for $50,500 that will have a five-year useful life and no salvage value. The machine will lower operating costs by $17,000 per year. The company's required rate of return is 18%. The profitability index for this investment is closest to: Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided. Multiple Choice O 0.95. 1.01. 1.05. 1.11.
Ivanhoe Industries management is planning to replace some existing machinery in its plant. The cost of the new equipment and the resulting cash flows are shown in the accompanying table. The firm uses an 18 percent discount rate for projects like this. Should management go ahead with the project? Year Cash Flow 0 -$3,046,900 1 803,710 2 889,200 3 1,247,600 4 1,285,160 5 1,576,500 What is the NPV of this project? - NPV $?
Kunkel Company is considering the purchase of a $29,000 machine that would reduce operating costs by $6,500 per year. At the end of the machine's five-year useful life, it will have zero salvage value. The company's required rate of return is 16%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table. Required: 1. Calculate the net present value of the investment in the machine. 2. What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Calculate the net present value of the investment in the machine. Note: Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar amount. Use the appropriate table to determine the discount factor(s). Net present value
Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $193,900 and has an estimated useful life of 8 years with zero salvage value. Management estimates that the new bottling machine will provide net annual cash flows of $30,600. Management also believes that the new bottling machine will save the company money because it is expected to be more reliable than other machines, and thus will reduce downtime. Assume a discount rate of 7%. Click here to view the factor table. Calculate the net present value. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to 0 decimal places, eg. 125.) Net present value $ $ How much would the reduction in downtime have to be worth in order for the project to be acceptable? (Round answer to O decimal places, e.g. 125.) 11178…
Managers at Eller Manufacturing are considering purchasing a new refrigerated delivery truck that will produce equal annual cash flows of $36,000 for 6 years. The truck's net present value is $12,780, its cost is $144,000, its useful life is 6 years, and its annual depreciation expense (no salvage value) is $24,000. What is the discount rate used by Eller to evaluate this project?
3. OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $499 million, and will operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $68.4 million and its cost of capital is 11.6%. Prepare an NPV profile of the purchase. To plot the NPV profile we compute the NPV of the project for various discount rates and plot the curve. The NPV for a discount rate of 2.0% is $______________________million. (Round to one decimal place.) The NPV for a discount rate of 11.5% is $_____________________million. (Round to one decimal place.) The NPV for a discount rate of 17.0% is $_____________________million. (Round to one decimal place.) The NPV profile is: Graph portion from picture. Identify the IRR on the graph. The approximate IRR from the graph is_______________%.(Round your answer to one decimal place.) Should OpenSeas go ahead with the purchase? (Select the best choice below.) A. No, because at a…

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