The trustees of the Danube School of Art and Music, located in Tuttlingen, Germany, are considering a major overhaul of the school'saudio system. With or without the overhaul, the system will be replaced in two years. If an overhaul is done now, the trustees expect tosave the following repair costs during the next two years: year 1, 3,900 euros; year 2, 5,900 euros. The overhaul will cost 7,957 euros.(The euro is used in most European markets.)Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)Required:Use trial and error to compute the internal rate of return on the proposed overhaul. (Hint: The NPV of the overhaul is positive if an 10percent discount rate is used, but the NPV is negative if a 18 percent rate is used.)> Answer is complete but not entirely correct.Internal rate of return22 X %

As per the IRR tool of the capital budgeting process, the rate of return on the given cash flows…

Answered: The trustees of the Danube School 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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Hotel California, a lovely place along the 101 Highway, last underwent an upgrade in 1969. As a result of its dilapidated conditions, it has plenty of extra rooms. It is considering a major renovation. The construction costs of the renovation are estimated to be $1 million, payable at the end of construction. If the construction starts today, it will last one year. During the renovation, the hotel will be closed to guests (however assume that all of the hotel's expenses, such as paying staff, are unchanged due to long term contracts). Hotel California's capacity is 40 rooms and, on average, 60% of the rooms are vacant on any single day. The daily profit per occupied room is $90. The corporate tax rate is 20%, the appropriate discount rate is 9\% and renovation can be depreciated at 33.3% per year. (a) Compute the average profit per occupied room a year. Then compute the average profit for the hotel as a whole. Assume 365 days per year. (b) Suppose Hotel California decides to begin…
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In 2018, the Port of Spain General Hospital purchases a scanner at a cost of $ 100,000. The scanner has a useful life of 5 years with no residual value. It is depreciated using the straight line method and its annual operating costs are $ 120,000. In 2019 the hospital is approached by another supplier to purchase a more modern machine for $ 115,000. This new machine has a life span of 4 years and will save $ 25,000 in annual operating costs. The new supplier is willing to buy the old scanner for $ 30,000. Required: Compute the gain or loss if the old scanner is replaced in 2019. 2. Advise the hospital on the purchase of the new scanner.
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Raycroft operates a nuclear power station. The power station is due to be decommissioned on 31 December 20X8 but will be fully operational up to that date. It has been estimated that the cost of decommissioning the power station and cleaning up any environmental damage, as required by legislation, will be $60 million. Raycroft recognised a provision for the present value of this expenditure at 31 December 20X0. A suitable discount rate for evaluating costs of this nature is 12%, equivalent to a present value factor after eight years of 0.404. The decommissioning cost will be depreciated over eight years. What is the total charge to profit or loss in respect of this provision for the year ended 31 December 20X1 and 20X2?
A company that sells has proposed to a small public utility company that it purchase a small electronics computer for ₱1,000,000 to replace ten calculating machines and their operators. An annual service maintenance contract for the computer will be provided at a cost of ₱100, 000 per year. One operator will be required at a salary of ₱110, 000 per year and one programmer at a salary of ₱160, 000. The estimated economical life of the computer is 10 years. The calculating machines costs ₱8,000 each when new, 5 years ago, and presently can be sold for ₱2,000 each. They have an estimated life of 8 years and an expected ultimate trade in value of ₱1, 000 each. Each calculating machine operator receives ₱85, 000 per year. Fringe Benefits for all labour cost 8% of annual salary. Annual maintenance cost on the calculating machine has been ₱500 each. Taxes and insurance on all equipment is 2% of the first cost per year. If capital costs the company about 25%, would you recommend the computer…
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In 2018, the Port of Spain General Hospital purchases a scanner at a cost of $ 100,000. The scanner has a useful life of 5 years with no residual value. It is depreciated using the straight line method and its annual operating costs are $ 120,000. In 2019 the hospital is approached by another supplier to purchase a more modern machine for $ 115,000. This new machine has a life span of 4 years and will save $ 25,000 in annual operating costs. The new supplier is willing to buy the old scanner for $ 30,000. Required: a) Compute the gain or loss if the old scanner is replaced in 2019. b) Advise the hospital on the purchase of the new scanner.

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