9 DQuestion 40The Orange Goat Company is considering the purchase of a new machine to replace an inefficientone. The machine being used for the operation has a book value and a market value of zero.However, the machine is in good working order and will last at least another 7 years. The proposedreplacement machine will perform the operation so much more efficiently that OG's engineersestimate that it will produce after-tax cash flows (labor savings) of $12,500 per year. The after-taxcost of the new machine is $75,000, and its economic life is estimated to be 7 years. It has zerosalvage value. The firm's WACC is 8%, and its marginal tax rate is 20%.Should the Orange Goat buy the new machine?No, the new machine will cannibalize the old oneYes, the machine should be discounted making the NPV positive to $5,080Yes, the labor savings create a positive value of $12,500 per yearNone of these are correct, Al and Machine Learning are taking over the worldO No, the NPV is -$9,920, which is negative, and therefore should not buy it

Net present is the defence between present value of all cash inflow and initial investment NPV = PV…

Answered: The Orange Goat Company is considering…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk

Section: Chapter Questions

Problem 4P

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Payback, Accounting Rate of Return, Net Present valde, Internal Rate of Retum Follow the format shown in Exhibit 12B.1 and Exhibit 12B.2 as you complete the requirements below. Woodard Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of tractors. The outlay required is $460,800. The NC equipment will last 5 years with no expected salvage value. The expected after-tax cash flows associated with the project follow: Year 1 2 3 4 5 Required: Cash Revenues $612,000 612,000 612,000 612,000 612,000 Cash Expenses $432,000 432,000 432,000 432,000 432,000 1. Compute the payback period for the NC equipment. Round your answer to two decimal places. 2.56 ✓ years Check My Work 2. Compute the NC equipment's ARR. Round the percentage to one decimal place. Assume straight-line depreciation. 19.1 ✓ % 3. Compute the investment's NPV, assuming required rate of return of 10%. Round present value calculations and your final answer…
Simple Rate of Return Method The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $120,000. The machine would replace an old piece of equipment that costs $30,000 per year to operate. The new machine would cost $12,000 per year to operate. The old machine currently in use could be sold now for a salvage value of $40,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine?
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