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The Sunshine Corporation has to make a choice between two different solutions to its current production bottleneck. It can purchase the Superduper Model XT, which is more expensive but will have a useful life of 6 years, or it can purchase the Mediocre Model UX, which is less expensive but will only have a useful life of 3 years. The company requires a 10 percent rate of
The Superduper’s cash flows are: Yr0 = -75, Yr1 = 10, Yr2 = 15, Yr3 = 25, Yr4 = 30, Yr5 = 25, Yr6 = 20.
The Mediocre’s cash flows are: Yr0 = -50, Yr1 = 25, Yr2 = 30, Yr3 = 13.
Using the replacement chain method, which of these two alternatives is better?
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- Your firm is considering the purchase of two alternative machinery: Machine A has an expected life of 2 years, will cost Rs. 75 million, and will produce net cash flows of INR 45 million per year. Machine B has a life of 4 years, will cost INR 100 million, and will produce net cash flows of INR 33 million per year. Your firm plans to use the chosen machine for only 4 years. Inflation in operating costs, machinery costs, is expected to be zero, and the company’s cost of capital is 9%. Which machine is acceptable as the better project using replacement chain method? Will your choice hold if cost of A becomes INR 90 million for second year? What is the equivalent annual annuity cost for each machine and evaluating with this criterion, do you find any difference in your decision on the better machinery, when you had used replacement chain method?Salt Lake Potash is considering a project with the following cash flows. An initial investment of $1.025bn is required for the project. The discount rate is 9%. The company wants to calculate how long it would take investors to recover their initial investment. The company does not want to ignore the effects of time value of money and the discount rate. Year O CF ($mn) -$1,025 1.83 years 2.26 years What is your best estimate of the time to recovery? $159.79mn 1 2 $650 $450 19.9% 3 $250 4 $50A paving company is considering selling their lab faciltities and outsourcing their QC (Quality Control) testing. This external testing will cost them an average of $140k per year, but the will save $45k per year in labor costs. Selling their lab facilties will generate $1m. Assuming that this decision is permamenet, is this a good idea if their MARR is 8% per year. (DRAW CASH FLOW DIAGRAM PLS)
- A paving company is considering selling their lab faciltities and outsourcing their QC (Quality Control) testing. This external testing will cost them an average of $140k per year, but the will save $45k per year in labor costs. Selling their lab facilties will generate $1m. Assuming that this decision is permamenet, is this a good idea if their MARR is 8% per year. draw the cash flow diagram please.Play Products is considering producing toy action figures and sandbox toys. The products require different specialized machines, each costing $1.4million. Each machine has a five-year life and zero residual value. The two products have different patterns of predicted net cash inflows: Play will consider making capital investments only if the payback period of the project is less than 3.5 years and the ARR exceeds 8%. Annual Net CashAnnual Inflows Year Toy action figure project Sandbox toy project Year 1. . . . . . . . . . . $305,450 $550,000 Year 2. . . . . . . . . . . 305,450 350,000 Year 3. . . . . . . . . . . 305,450 310,000 Year 4. . . . . . . . . . . 305,450 270,000 Year 5. . . . . . . . . . . 305,450 25,000 Total $1,527,250 $1,505,000 Calculate the toy action figure project's payback period. If the toy action figure project had a residual value of $150,000,would the payback period change? Explain and…Gondoko Manufacturing is considering purchasing two machines. Each machine costs P90,000 and will produce cash flows as follows: End of Year Machine B A 1 P 50,000 P 10,000 2 40,000 20,000 3 20,000 110,000 Turk Manufacturing uses the net present value method to make the decision, and it requires a 15% annual return on its investments. Which machine should Turk purchase? Group of answer choices Neither machine is acceptable. Only Machine B is acceptable. Both machines are acceptable, but A should be selected because it has the greater net present value. Both machines are acceptable, but B should be selected because it has the greater net present value. Only Machine A is acceptable.
- | Frontier Corp. is considering a new product that would require an after-tax investment of $1,400,000 at t = 0. If the new product is well received, then the project would produce after-tax cash flows of $650,000 at the end of each of the next 3 years (t = 1, 2, 3), but if the market did not like the product, then the cash flows would be only $100,000 per year. There is a 70% probability that the market will be good. Tsai Corp. could delay the project for a year while it conducted a test to determine if demand would be strong or weak. The project's cost and expected annual cash flows are the same whether the project is delayed or not; however, the timing of the cash flows would change. (There would be the same number of cash flows-only the cash flows would be extended out one extra year.) The project's WACC is 10%. What is the value of the project after considering the investment timing option? a. $108,226.89 b. $137,743.32 c. $167,259.75 d. $196,776.18 e. $216,453.79JBL Inc. is considering a new product that would require an after-tax investment of $1,400,000 at t = 0. If the new product is well received, then the project would produce after-tax cash flows of $ 650,000 at the end of each of the next 3 years (t = 1, 2, 3), but if the market did not like the product, then the cash flows would be only $100,000 per year. There is a 70% probability that the market will be good. JBL Inc. could delay the project for a year while it conducted a test to determine if demand would be strong or weak. The project's cost and expected annual cash flows are the same whether the project is delayed or not; however, the timing of the cash flows would change. (There would be the same number of cash flows-only the cash flows would be extended out one extra year.) The project's WACC is 10%. What is the value of the project after considering the investment timing option? a. $108, 226.89 b. $ 137, 743.32 c. $167, 259.75 d. $196, 776.18 e. $216, 453.79Toyland Products is considering producing toy action figures and sandbox toys. The products require different specialized machines, each costing $1 million. Each machine has a five-year life and zero residual value. The two products have different patterns of predicted net cash inflows. (Click the icon to view the data.) Calculate the toy action figure project's ARR. If the toy action figure project had a residual value of $175,000, would the ARR change? Explain and recalculate if necessary. Does this investment pass Toyland's ARR screening rule? First, enter the formula, then compute the ARR of the toy action figure project. (Enter amounts in dollars, not millions. Enter your answer as a percent rounded to two decimal places.) Accounting Average annual operating income from asset Initial investment rate of return %
- Feldman Corp. is considering a new product that would require an investment of $8 million at t = 0. If the new product is well received, then the project would produce after-tax cash flows of $3.4 million at the end of each of the next 3 years (t = 1, 2, 3), but if the market did not like the product, then the cash flows would be only $1.85 million per year. There is a 65% probability that the market will be good. Foltz Corp. could delay the project for a year while it conducted a test to determine if demand would be strong or weak. The project's cost and expected annual cash flows are the same whether the project is delayed or not; however, the timing of the cash flows would change. (There would be the same number of cash flows—only the cash flows would be extended out one extra year.) The project's WACC is 10%. What is the value of the project after considering the investment timing option? a. $144,867.15 b. $269,039.00 c. $357,188.00 d. $413,906.15 e. $455,296.77(Calculating free cash flows) You are considering new elliptical trainers and you feel you can sell 5.000 of these per year for 5 years (after which time this project is expected to shut down when it is learned that being fit is unhealthy). The elliptical trainers would sell for $1.000 each and have a variable cost of $500 each. The annual fland costs associated with production would be $1,300,000 In addition, there would be a $3,000,000 initial expenditure associated with the purchase of new production equipment. It is assumed that this initial expenditure will be depreciated using the bonus depreciation method in year 1. This project will also require a one-time initial investment of $1,200 000 in not working capital associated with inventory, and working-capital investment will be recovered when the project is shut down Finally, assume that the firm's marginal tax rate is 25 percant a. What is the initial outlay associated with this project? b. What are the annual free cash flows…3. Schultz Company is considering purchasing a machine that would cost $478,800 and have a useful life of 5 years. The machine would reduce cash operating costs by $114,000 per year. The machine would have a salvage value of $6,200. Schultz Company prefers a payback period of 3.5 years or less.Required: a. Compute the payback period for the machine. What does this mean? b. Compute the return on average investment (ROI)
