To maintain its newly acquired equipment, the company need P40,000 per year for the first five years and P60,000 per year for the next five years. In addition, an amount of P140,000 would also be needed at the end of the fifth and the eighth years. At 6%, what is the present worth of these costs?

To maintain its newly acquired equipment, the company need P40,000 per year for the first five years and P60,000 per year for the next five years. In addition, an amount of P140,000 would also be needed at the end of the fifth and the eighth years. At 6%, what is the present worth of these costs?

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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New equipment costs $847,000 and is expected to last for five years with the salvage value of 10% of the equipment cost. During this time the company will use a 20% CCA rate. The new equipment will save $280,000 annually before taxes. If the company's required rate of return is 5.35%, determine the PVCCATS of the purchase. Assume a tax rate of 35%. Please show all the calculations by which you came up with the final answer.
It is estimated that insulation of steam pipes in a factory will reduce the fuel bill by as much as 20%. The cost of the insulation is P120,000, and the annual cost of taxes and insurance is 5% of the initial cost. Without the insulation, the annual fuel bill is P190,000. If the insulation is worthless after 6 years, and a minimum return is 12% , would it be worthwhile to invest in the insulation? What is the payback period of the investment?
900 Islands Co. is interested in purchasing a machine that would improve its operational efficiency. The cost is $200,000 with an estimated residual value of $20,000and a useful life of eight years. Cash inflows are expected to increase by $40,000 a year. The company's minimum rate of return is 10 percent. The present value of $1 for eight years at 10 percent is 0.467, and the present value of an annuity of $1 at 10 percent and eight years is 5.335. The net present value of the project is?
What must the annual earnings be from a new piece of equipment that costs $10 million and has a projected operating life of 10 years? Assume the salvage value is $800,000 at the end of year 10. Use an interest rate of 10% compounded annually.
A company predicts they will make $17,948 per year over the next 6 years if they spend $14,012 on a machine (an asset with multi-year use). If the MARR is 15.6%, how much is this investment worth per year?
Beene Distributing is considering a project that will return $150,000 annually at the end of each year for the next six years. If Beene demands an annual return of 7% and pays for the project immediately, how much is it willing to pay for the project?
A project costs $1500 today, yields $300 per year for three years and $700 for two years. Then there is an expense of $500 at the end of the project. The interest rate is 7% per annum. 1) Find the net present value. 2) Should you take this project?
The machine bought for P60, 000 is expected to last for 30 years. If the book value after 20 years is P20,000. How much is the depreciation each year, and the book value after 10 years.
A company is considering an investment in a machine. The machine will cost $250,000 and will have a seven year useful economic life. It has a salvage value of $50,000. The expected annual operating costs for the machine would be $30,000 (for each year of the seven years). Assume that the company's desired return on its investment (MARR) is 11%, find the annual equivalent cost (AEC)?
Oriole Corporation is considering adding a new product line. The cost of the factory and equipment to produce this product is $1,700,000. Company management expects net cash flows from the sale of this product to be $630,000 in each of the next eight years. If Oriole uses a discount rate of 11 percent for projects like this, what is the net present value of this project? (Round intermediate calculations to 5 decimal places, e.g. 0.42354. Round answer to O decimal places, e.g. 52.25. Enter negative amounts using negative sign e.g. -45.25.) NPV $ 36695.55 What is the internal rate of return? (Round answer to 2 decimal places, e.g. 52.50.) Internal rate of return %
The purchase price of the machine required to produce a certain part is 40000 TL, the maintenance cost is 14000 TL / year and the scrap value after 5 years is 8000 TL. Since the variable cost in the production of the part is 2.5 TL/piece and the sales price of the piece is 4 TL / piece, how many products should be sold to reach the breakeven point at 12% interest rate?
You have an option of either buying a new machine for R2 million or employing 4 people to do the same job at the annual wage of R100,000 per person per year. Assume the following:• Equipment maintenance is 2% of the capital cost per year, the discount rate, equivalent to your working average cost of capital (WACC), is 16% and the project duration is 10 years• Salaries are paid at the end of the year, as from the end of year one.Calculate the following:a. The Annual Worth (AW) of both optionsb. Which option will be better for you? Why?c. Do a sensitivity analysis showing the variation in the AW of both options (separately) with ±25% changes in WACC, capital cost (option 1 only) and number of employees (option 2 only). Draw two separate graphs showing the relationships between the variables.d. Assume that wages are rising; at what salary per employee is the two options equivalent?e. Now assume that WACC is falling; at what value of WACC are the two scenarios equivalent (use base case…

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