Proposed situation:Fully automated machine --- no operator requiredCost of machine$60,000After tax installation fee$3,000---After-tax shipping fee - $3,000Cost of maintenance. $3,000 per yearCost of defectsExpected life ---5 yearsSalvage value- $20,000---------$3,000 per yearDepreciation method --- simplified straight-lineMethod over 5 years No2. The Scotty Corporation, maker of Scotty's electronic components, is consideringreplacing one of its current hand-operated assembly machines with a new fully automatedmachine. This replacement would mean the elimination of one employee, generatingsalary and benefit saving. Given the following information, determine the cash flowsassociated with this replacement.Existing situation:One full-time machine operator --- salary and benefits,$25,000 per yearCost of maintenance -- $2,000 per yearCost of defects --- $6,000 per yearOriginal depreciable value of old machine --- $50,000Annual depreciation --- $5,000 per yearExpected life 10 yearsAge5 years oldExpected salvage value in 5 years. $0Current salvage valueMarginal tax rate --- 34 percent$5,000----------

The cash flow stream for a replacement project comprise of three components:- (1) initial investment…

Answered: The Scotty Corporation, maker of…

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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BAK Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it possible for the company to bid on jobs that it currently isn't equipped to do. Estimates regarding each machine are provided below. Machine A Machine B Original cost $ 77,500 $ 186,000 Estimated life 8 years 8 years Salvage value $ 19,500 $ 39,600 Estimated annual cash inflows $ 5,040 $ 9,800 Estimated annual cash outflows Click here to view the factor table. Calculate the net present value and profitability index of each machine. Assume a 9% discount rate. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answer for present value to 0 decimal places, e.g. 125 and profitability index to 2 decimal places, e.g. 10.50. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Machine A Machine B Net present value Profitability index Which machine should be purchased? should be…
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A company in the region is planning for a new project that requires an investment in new machinery. The cost of machinery is RO 20,000. The total expenses to transport and install the machinery will be RO 5,000. Since the machinery uses the latest technology, it will result in a reduction of overall cost by RO 10,000. The company offers free maintenance for the machinery. Savings on account of the free maintenance will be RO 1,000 every year. The annual contract requires the company to pay RO 1,500 every year for vendor support. The total life of the project will be five years and it is expected that the machinery can be disposed at the end for 2,000. Straight-line depreciation is used by the company. The effective tax rate is 15%. Calculate Relevant Cash Flows for Capital Project 9050 9010 8765 9500
Henrie's Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $151,640, including freight and installation. Henrie's estimated the new machine would increase the company's cash inflows, net of expenses, by $40,000 per year. The machine would have a five-year useful life and no salvage value. Click here to view Exhibit 148-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table. Required: 1. What is the machine's internal rate of return? Note: Round your answer to the nearest whole percentage, i.e. 0.123 should be considered as 12%. 2. Using a discount rate of 10%, what is the machine's net present value? Interpret your results. 3. Suppose the new machine would increase the company's annual cash inflows, net of expenses, by only $35,030 per year. Under these conditions, what is the internal rate of return? Note: Round your answer to the nearest whole percentage, i.e. 0.123 should be considered as…
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Subject: acounting
Wilberton’s has total assets of $537,800, net fixed assets of $412,400, long-term debt of $323,900, and total debt of $388,700. If inventory is $173,900, what is the current ratio? Can the calculator and excel solution be provided?
Wendell’s Donut Shoppe is investigating the purchase of a new $40,000 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $5,200 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 2,000 dozen more donuts each year. The company realizes a contribution margin of $2.40 per dozen donuts sold. The new machine would have a six-year useful life. Required: 4. In addition to the data given previously, assume that the machine will have a $10,515 salvage value at the end of six years. Under these conditions, what is the internal rate of return? (Hint: You may find it helpful to use the net present value approach; find the discount rate that will cause the net present value to be closest to zero.) (Round your final answer to the nearest whole percentage.)
BAK Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it possible for the company to bid on jobs that it currently isn’t equipped to do. Estimates regarding each machine are provided below. Machine A Machine B Original cost $74,000 $179,000 Estimated life 8 years 8 years Salvage value 0 0 Estimated annual cash inflows $19,500 $39,500 Estimated annual cash outflows $4,800 $9,800 Click here to view the factor table.Calculate the net present value and profitability index of each machine. Assume a 9% discount rate. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answer for present value to 0 decimal places, e.g. 125 and profitability index to 2 decimal places, e.g. 10.50. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Machine A Machine B Net present value…
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Solve for the rate of return and Explain
Henrie’s Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $137,320, including freight and installation. Henrie’s estimated the new machine would increase the company’s cash inflows, net of expenses, by $40,000 per year. The machine would have a five-year useful life and no salvage value. Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using table. Required: 1. What is the machine’s internal rate of return? (Round your answer to whole decimal place i.e. 0.123 should be considered as 12%.) 2. Using a discount rate of 14%, what is the machine’s net present value? Interpret your results. 3. Suppose the new machine would increase the company’s annual cash inflows, net of expenses, by only $31,720 per year. Under these conditions, what is the internal rate of return? (Round your answer to whole decimal place i.e. 0.123 should be considered as 12%.)

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