The TechGuide Company produces and sells 7,500 modular computer desks per year at a selling price of $750 each. Its current production equipment, purchased for $1,800,000 and with a five-year useful life, is only two years old. It has a terminal disposal value of $0 and is depreciated on a straight-line basis. The equipment has a current disposal price of $450,000. However, the emergence of a new molding technology has led TechGuide to consider either up- grading or replacing the production equipment. The following table presents data for the two alternatives: Home Insert Page Layout Formulas Data Review Upgrade $3,000,000 Replace $4,800,000 2 One-time equipment costs 3 Variable manufacturing cost per desk 4 Remaining useful life of equipment (in years) 5 Terminal disposal value of equipment 150 75 3 3 24 24

The TechGuide Company produces and sells 7,500 modular computer desks per year at a selling price of $750 each. Its current production equipment, purchased for $1,800,000 and with a five-year useful life, is only two years old. It has a terminal disposal value of $0 and is depreciated on a straight-line basis. The equipment has a current disposal price of $450,000. However, the emergence of a new molding technology has led TechGuide to consider either up- grading or replacing the production equipment. The following table presents data for the two alternatives: Home Insert Page Layout Formulas Data Review Upgrade $3,000,000 Replace $4,800,000 2 One-time equipment costs 3 Variable manufacturing cost per desk 4 Remaining useful life of equipment (in years) 5 Terminal disposal value of equipment 150 75 3 3 24 24

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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Examples of opportunity costs include: not getting a high yield because you have set aside funds in a low risk investment. ☐not having as much money in savings because you purchased new appliances to save energy costs. trading in a large car with poor gas mileage for a smaller car that is fuel-efficient. delaying investment while waiting for the time value of money to increase the pay received. having enough money to save for retirement and to pay for current expenses.
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One of the benefit of the pay back period is that it focuses on the timing of the project`s benefits and costs, even though it does not adjust the cash flows for the time value of money Select one: True False
It was becoming clear to Swifty Corp's managers that the company's furnace was reaching the end of its useful life (a little sooner than they had hoped). There is a feasible option for an overhaul on the existing furnace, which would extend its useful life and not break the bank. Or the company could go all-in and just replace the old furnace with a more efficient model. Additional information for each option is as follows. 1 2 Overhaul existing furnace. Initial cost of $5,100; annual operating costs would be $12,000; expected life of 10 years with no salvage value. (a) Replace with new. Initial cost of $11,800; annual operating costs would be $9,320; under full warranty for 10 years with no expected salvage value. Swifty estimates an effective tax rate of 24% and typically requires at least a 4% rate of return. Click here to view the factor table Calculate the NPV of the overhaul option, keeping in mind that the current book value of the existing furnace is still $1,500. (Round…
The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project's IRR. Consider the following situation: Cold Goose Metal Works Inc. is analyzing a project that requires an initial investment of $3,000,000. The project's expected cash flows are: Year Year 1 Cash Flow $375,000 Year 2 -175,000 Year 3 400,000 Year 4 450,000 Cold Goose Metal Works Inc.'s WACC is 7%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR): O 14.83% O-19.30% O 20.07% 13.96% If Cold Goose Metal Works Inc.'s managers select projects based on the MIRR criterion, they should this independent project.
Which one of the following is the proper dollar value of existing equipment to use in replacement analysis? A. Original cost B. Present market value if sold C. Present trade-in value D. Present book value E. Present market value if sold minus removal and selling expenses
(Ignore income taxes in this problem.) Your Company has a telephone system that is in poor condition. The system must be either overhauled or replaced with a new system. The following data have been gathered concerning these two alternatives: Present System Proposed New System Purchase cost when new $100,000 $110,000 Accumulated depreciation 90,000 Overhaul cost needed now 80,000 Working capital required 50,000 Annual cash operating costs 30,000 20,000 Salvage value now of old system 10,000 Salvage value in 8 years 2,000 15,000 Your Company uses a 12% discount rate and the total cost approach to capital budgeting analysis. Both alternatives are expected to have a useful life of eight years. What is the net present value of the new system alternative? Enter your answer without dollar signs. If the NPV is negative enter with a minus sign in front.
What is not a disadvantage of using the Payback Period Method? Hard to calculate O Ignores time value of money Uses an arbitrary benchmark O Biased against long term project None of the above
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I also have some confuse for the decision: system B is more beneficial then system A due to lower negative NPV from system A. Should we need compare with negative NPV or cost per year? For negative NPV, system A ($541,843)is lower negative NPV than system B($706,984.82). On the other hand, system B ($167,116.14) is lower cost of each year than system A ($174,652.85). Thank you ~
(Ignore income taxes in this problem.) Your Company has a telephone system that is in poor condition. The system must be either overhauled or replaced with a new system. The following data have been gathered concerning these two alternatives: Present System Proposed New System Purchase cost when new $100,000 $110,000 Accumulated depreciation, 90,000 Overhaul cost needed now 80,000 Working capital required 50,000 Annual cash operating costs 30,000 20,000 Salvage value now of old system 10,000 Salvage value in 8 years 2,000 15,000 Your Company uses a 12% discount rate and the total cost approach to capital budgeting analysis. Both alternatives are expected to have a useful life of eight years. What is the net present value of the new system alternative? Enter your answer without dollar signs. If the NPV is negative enter with a minus sign in front.
TLT Ltd is considering the purchase of a new machine for use in its production process. Management has developed three alternative proposals to help evaluate the machine purchase. Only one of these proposals can be implemented. Proposals A and B both have the same cost to set up, but the output from proposal A (as measured by future net cash flows) commences at a high rate and then declines over time, while Proposal B starts at a low rate and then increases over time. Proposal C involves buying two of the machines considered under proposal B. That is, proposal C is simply Proposal B scaled by a factor of two. Proposal C results in net cash flows which are similar in magnitude to proposal A's net cash flows in the first two years. The estimated net cash flows, internal rates of return and net present values at 9% and 11% for each proposal are given in the following table. Proposal A -$290,000 $100,000 $90,000 Proposal B -$290,000 $40,000 $50,000 Proposal C -$580,000 $80,000 $100,000 End…