The Management of Sandhill Manufacturing Company is evaluating two forklift systems to use in its plant that produces the towers for a windmill power farm. The costs and the cash flows from these systems are shown below. The company uses a 9 percent discount rate for all projects. Otis Forklifts Craigmore Forklifts Otis forklift Craigmore Forklifts Year 2 $-3,110,450 $964,225 $1,352,886 $-4,138,410 $861,236 $1,748,225 Year 0 NPV Year 1 $551,814 $350,223 Year 3 $2,122,497 $2,884,110 Compute the IRR for each of the two systems. (Round intermediate calculation to O decimal places, e.g. 1,525 and final answers to 2 decimal

The Management of Sandhill Manufacturing Company is evaluating two forklift systems to use in its plant that produces the towers for a windmill power farm. The costs and the cash flows from these systems are shown below. The company uses a 9 percent discount rate for all projects. Otis Forklifts Craigmore Forklifts Otis forklift Craigmore Forklifts Year 2 $-3,110,450 $964,225 $1,352,886 $-4,138,410 $861,236 $1,748,225 Year 0 NPV Year 1 $551,814 $350,223 Year 3 $2,122,497 $2,884,110 Compute the IRR for each of the two systems. (Round intermediate calculation to O decimal places, e.g. 1,525 and final answers to 2 decimal

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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Providence Health is evaluating two different linen supply vendors systems for handling facility linen replacement. There are no incremental revenues attached to the projects, so the decision will be made on the basis of the present value of costs. Providence's weighted average cost of capital is 6.25%. Here are the net cash flow estimates in thousands of dollars: Year 0 1 2 3 4 5 System X System Y S (1,800) $ (3,850) S (1,000) S (500) (1,000) S (500) S S (1,000) S S (1,000) S S (1,000) S (500) (500) (500) [a] Assume initially that the systems both have average risk. Which one should be chosen? [b] Assume that System Y is judged to have high risk. The organization accounts for differential risk by adjusting its corporate cost of capital
Perit Industries has $210,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Project A Project B Cost of equipment required $ 210,000 $0 Working capital investment required $0 $ 210,000 Annual cash inflows $ 30,000 $ 52,000 Salvage value of equipment in six years $ 9, 100 $ 0 Life of the project 6 years 6 years The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discount rate is 15%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project A. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 2. Compute the net present value of Project B. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 3. Which investment alternative (if either) would you…
The investment committee of Sentry Insurance Co. is evaluating two projects, office expansion and upgrade to computer servers. The projects have different useful lives, but each requires an investment of $1,104,000. The estimated net cash flows from each project are as follows: Net Cash Flow Year OfficeExpansion Server 1 $308,000 $407,000 2 308,000 407,000 3 308,000 407,000 4 308,000 407,000 5 308,000 6 308,000 The committee has selected a rate of 15% for purposes of net present value analysis. It also estimates that the residual value at the end of each project's useful life is $0, but at the end of the fourth year, the office expansion's residual value would be $385,000. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5…
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Fernando Constantia, an engineer at Brandy River Vineyards, has a $100,000 budget for winery improvements. He has identified four investments, all of five years' duration, which have the cash flows shown in the accompanying table. Assuming the four investments are independent, use the IRR method to select which, if any, should be chosen. Use a MARR of 8 percent. 0 - $100,000 - $100,000 2 $24,800 $10,200 $50,000 $0 - $100,000 - $100,000 Give the IRR for each alternative and indicate whether or not it is acceptable. Alternative A Alternative A B C D B с D IRR % % % 1 $24,800 $5,100 $50,000 $0 Acceptable ▼ % (Round to three decimal places as needed.) 3 $24,800 $20,400 $10,000 $0 4 $24,800 $40,800 5 $24,800 $81,600 $0 $0 $0 $1,000,000
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Sheridan Mills management is evaluating two alternative heating systems. Costs and projected energy savings are given in the following table. The firm uses 11.50 percent to discount such project cash flows. Year System 100 System 200 0 –$1,982,100 –$1,854,200 1 206,910 763,700 2 429,830 589,800 3 743,040 671,900 4 1,046,900 426,300 What is the NPV of the systems? (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors and intermediate calculations. Round final answers to 0 decimal places, e.g. 5,275.)
You work for an outdoor play structure manufacturing company and are trying to decide between the following two projects: (Click on the following icon in order to copy its contents into a spreadsheet.) Year-End Cash Flows ($ thousands) 1 19 39 Project Playhouse Fort You can undertake only one project. If your cost of capital is 8%, use the incremental IRR rule to make the correct decision. 0 - 27 - 78 2 20 50 IRR 28.2% 8.9% The incremental IRR is %. (Round to two decimal places.) With the incremental IRR at - 1.23% and the cost of capital of 8%, you should undertake the ▼ (Select from the drop-down menu.)
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he cash flows associated with a public works project in Buffalo, New York, are shown. Use the modified B/C ratio at a discount rate of 5% per year to determine the economic justification. First cost, $ 30,000,000 AW of benefits, $/year 7,700,000 AW of disbenefits, $/year 1,700,000 M&O costs, $/year 1,525,000 Life of project, years 30 The modified B/C ratio is . The project is economically (Click to select) justified not justified .