The owner of Atlantic City Confectionary is considering the purchase of a new semiautomatic candy machine. The machine will cost $25,000 and last 10 years. The machine is expected to have no salvage value at the end of its useful life. The owner projects that the new candy machine will generate $4,000 in after-tax savings each year during its life (including the depreciation tax shield). Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: Compute the profitability index on the proposed candy machine, assuming an after-tax hurdle rate of: (a) 8 percent, (b) 10 percent, and (c) 12 percent. (Round your final answers to 2 decimal places.)
The owner of Atlantic City Confectionary is considering the purchase of a new semiautomatic candy machine. The machine will cost $25,000 and last 10 years. The machine is expected to have no salvage value at the end of its useful life. The owner projects that the new candy machine will generate $4,000 in after-tax savings each year during its life (including the depreciation tax shield). Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: Compute the profitability index on the proposed candy machine, assuming an after-tax hurdle rate of: (a) 8 percent, (b) 10 percent, and (c) 12 percent. (Round your final answers to 2 decimal places.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
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The owner of Atlantic City Confectionary is considering the purchase of a new semiautomatic candy machine. The machine will cost $25,000 and last 10 years. The machine is expected to have no salvage value at the end of its useful life. The owner projects that the new candy machine will generate $4,000 in after-tax savings each year during its life (including the
Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)
Required:
Compute the profitability index on the proposed candy machine, assuming an after-tax hurdle rate of: (a) 8 percent, (b) 10 percent, and (c) 12 percent. (Round your final answers to 2 decimal places.)
Transcribed Image Text:Future Value and Present
Value Tables
Table I
Period
4%
6%
8%
10%
12%
14%
20%
Future Value of $1.00(1 + j"
1
1.040
1.060
1.080
1.100
1.120
1.140
1.200
2
1.082
1.124
1.166
1.210
1.254
1.300
1.440
3
1.125
1.191
1.260
1.331
1.405
1.482
1.728
4
1.170
1.263
1.361
1.464
1.574
1.689
2.074
1.217
1.338
1.469
1.611
1.762
1.925
2.488
6
1.265
1.419
1.587
1.772
1.974
2.195
2.986
7
1.316
1.504
1.714
1.949
2.211
2.502
3.583
8.
1.369
1.594
1.851
2.144
2.476
2.853
4.300
9
1.423
1.690
1.999
2.359
2.773
3.252
5.160
10
1.480
1.791
2.159
2.594
3.106
3.707
6.192
11
1.540
1.898
2.332
2.853
3.479
4.226
7.430
12
1.601
2.012
2.518
3.139
3.896
4.818
8.916
13
1.665
2.133
2.720
3.452
4.364
5.492
10.699
14
1.732
2.261
2.937
3.798
4.887
6.261
12.839
15
1.801
2.397
3.172
4.177
5.474
7.138
15.407
20
2.191
3.207
4.661
6.728
9.646
13.743
38.338
30
3.243
5.744
10.063
17.450
29.960
50.950
237.380
40
4.801
10.286
21.725
45.260
93.051
188.880
1,469.800
Table II
Period
4%
6%
8%
10%
12%
14%
20%
uture Value of a Series of
$1.00 Cash Flows
1
1.000
1.000
1.000
1.000
1.000
1.000
1.000
Ordinary Annuity)
1+ n" - 1
2
2.040
2.060
2.080
2.100
2.120
2.140
2.220
3
3.122
3.184
3.246
3.310
3.374
3.440
3.640
4.247
4.375
4.506
4.641
4.779
4.921
5.368
5.416
5.637
5.867
6.105
6.353
6.610
7.442
6
6.633
6.975
7.336
7.716
8.115
8.536
9.930
7
7.898
8.394
8.923
9.487
10.089
10.730
12.916
8.
9.214
9.898
10.637
11.436
12.300
13.233
16.499
10.583
11.491
12.488
13.580
14.776
16.085
20.799
10
12.006
13.181
14.487
15.938
17.549
19.337
25.959
11
13.486
14.972
16.646
18.531
20.655
23.045
32.150
12
15.026
16.870
18.977
21.385
24.133
27.271
39.580
13
16.627
18.882
21.495
24.523
28.029
32.089
48.497
14
18.292
21.015
24.215
27.976
32.393
37.581
59.196
15
20.024
23.276
27.152
31.773
37.280
43.842
72.035
20
29.778
36.778
45.762
57.276
75.052
91.025
186.690
30
56.085
79.058
113.283
164.496
241.330
356.790
1,181.900
40
95.026
154.762
259.057
442.597
767.090
1,342.000
7,343.900
Transcribed Image Text:(1 + nº
Period
4%
6%
8%
10%
12%
14%
16%
18%
20%
22%
24%
26%
28%
30%
32%
.962
.943
.926
.909
.893
.877
.862
.847
.833
.820
.806
.794
.781
.769
.758
2
.925
.890
.857
.826
.797
769
.743
718
.694
.672
.650
.630
.610
.592
.574
.889
.840
.794
.751
.712
.675
.641
.609
.579
.551
.524
.500
.477
.455
435
4
.855
792
.735
.683
.636
.592
.552
.516
482
451
423
.397
.373
.350
.329
5
.822
.747
.681
.621
.567
.519
.476
.437
402
.370
.341
.315
.291
269
.250
.790
.705
.630
.564
.507
.456
410
.370
.335
.303
.275
.250
.227
.207
.189
7
.760
.665
.583
.513
452
400
.354
314
279
.249
.222
.198
.178
.159
.143
8.
.731
.627
.540
.467
404
.351
.305
.266
233
.204
.179
.157
.139
.123
.108
.703
.592
.500
.424
.361
.308
.263
.225
.194
.167
.144
.125
108
.094
.082
10
.676
.558
.463
.386
.322
.270
227
.191
.162
.137
.116
.099
.085
.073
.062
11
.650
.527
.429
.350
287
.237
.195
.162
.135
.112
.094
.079
.066
.056
.047
12
.625
497
.397
.319
.257
.208
.168
.137
.112
.092
.076
.062
.052
.043
.036
13
.601
.469
.368
.290
.229
.182
.145
.116
.093
.075
.061
.050
.040
.033
.027
14
.577
.442
.340
.263
.205
.160
.125
.099
.078
.062
.049
.039
.032
.025
.021
15
.555
.417
.315
.239
.183
.140
.108
.084
.065
.051
.040
.031
.025
.020
.016
20
456
.312
.215
.149
.104
.073
.051
.037
.026
.019
.014
.010
.007
.005
.004
30
.308
174
.099
.057
.033
.020
.012
.007
.004
.003
.002
.001
.001
40
.208
.097
.046
.022
.011
.005
.003
.001
.001
Table IV
Present Value of Series of
$1.00 Cash Flows
1
Period
4%
6%
8%
10%
12%
14%
16%
18%
20%
22%
24%
25%
26%
28%
30%
1
0.962
0.943
0.926
0.909
0.893
0.877
0.862
0.847
0.833
0.820
0.806
0.800
0.794
0.781
0.769
1.886
1.833
1.783
1.736
1.690
1.647
1.605
1.566
1.528
1.492
1.457
1.440
1.424
1.392
1.361
2.775
2.673
2.577
2.487
2.402
2.322
2.246
2.174
2.106
2.042
1.981
1.952
1.923
1.868
1.816
4
3.630
3.465
3.312
3.170
3.037
2.914
2.798
2.690
2.589
2.494
2.404
2.362
2.320
2.241
2.166
4.452
4.212
3.993
3.791
3.605
3.433
3.274
3.127
2.991
2.864
2.745
2.689
2.635
2.532
2.436
6
5.242
4.917
4.623
4.355
4.111
3.889
3.685
3.498
3.326
3.167
3.020
2.951
2.885
2.759
2.643
7
6.002
5.582
5.206
4.868
4.564
4.288
4.039
3.812
3.605
3.416
3.242
3.161
3.083
2.937
2.802
8
6.733
6.210
5.747
5.335
4.968
4.639
4.344
4.078
3.837
3.619
3.421
3.329
3.241
3.076
2.925
7.435
6.802
6.247
5.759
5.328
4.946
4.607
4.303
4.031
3.786
3.566
3.463
3.366
3.184
3.019
10
8.111
7.360
6.710
6.145
5.650
5.216
4.833
4.494
4.192
3.923
3.682
3.571
3.465
3.269
3.092
11
8.760
7.887
7.139
6.495
5.938
5.453
5.029
4,656
4.327
4.035
3.776
3.656
3.544
3.335
3.147
12
9.385
8.384
7.536
6.814
6.194
5.660
5.197
4.793
4.439
4.127
3.851
3.725
3.606
3.387
3.190
13
9.986
8.853
7.904
7.103
6.424
5.842
5.342
4.910
4.533
4.203
3.912
3.780
3.656
3.427
3.223
14
10.563
9.295
8.244
7.367
6.628
6.002
5.468
5.008
4.611
4.265
3.962
3.824
3.695
3.459
3.249
15
11.118
9.712
8.559
7.606
6.811
6.142
5.575
5.092
4.675
4.315
4.001
3.859
3.726
3.483
3.268
20
13.590
11.470
9.818
8.514
7.469
6.623
5.929
5.353
4.870
4.460
4.110
3.954
3.808
3.546
3.316
30
17.292
13.765
11.258
9.427
8.055
7.003
6.177
5.517
4.979
4.534
4.160
3.995
3.842
3.569
3.332
40
19.793
15.046
11.925
9.779
8.244
7.105
6.234
5.548
4.997
4.544
4.166
3.999
3.846
3.571
3.333
LG
23
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