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A: Computation:
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A: Note: This question has four subparts. The first three have been answered below:
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Q: Riverview Company is evaluating the proposed acquisition of a new production machine. The machine's…
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A:
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A: The calculations can be done as follows :
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- Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return In Excel, see Appendix C.Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
- A land development company is considering the purchase of earth-moving equipment. The equipment will have a first cost of $190,000 and a salvage value of $70000 when the company sells it in 10 years. A service contract for maintenance on the equipment will cost $40000 per year. The operating cost is expected to be $260 per day. Alternatively, the company can rent the necessary equipment for $1100 per day and hire a driver at $180 per day. If the company's MARR is 10% per year, how many days per year must the company need the equipment in order to justify its purchase? AlternativelyA company is considering the purchase of a new electron beam welder at a price of $250,000. The company would initially pay a down payment of $16000 and would borrow the balance at i=10%, for 6 years (making a single end of year payment each year). If the electron beam welder is purchased, the company will obtain a new 6-year welding contract that will increase annual income by $40,000. Maintenance and operating costs for the new welder will amount to $2100 for the first year and will increase by $1000 each year that the welder is used. CCA depreciation will be used for tax purposes. The welding machine sales company has agreed to "buy the welder back" for $25,000, when the new contract is concluded after six years. The tax rate = 34%, the MARR is 12%, CCA=30%. Develop the cash flow/ investment including as many details as possible. What is the net cash flow over 6 years ? If there were working capital (WC) required for this project, which year or years does it show up in the…Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following: Machine A could be purchased for $15,000. It will last 10 years with annual maintenance costs of $500 per year. After 10 years the machine can be sold for $1,575. Machine B could be purchased for $12,500. It also will last 10 years and will require maintenance costs of $2,000 in year three, $2,500 in year six, and $3,000 in year eight. After 10 years, the machine will have no salvage value. Required: Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year. Ignore income tax considerations. Calculate the present value of Machine A & Machine B. Which machine Esquire should purchase? Note: Do not round intermediate calculations. Round your final answers to nearest whole dollar amount. Use…
- Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following Machine A could be purchased for $36,000. It will last 10 years with annual maintenance costs of $1,200 per year. After 10 years the machine can be sold for $3,780. Machine B could be purchased for $30,000. It also will last 10 years and will require maintenance costs of $4,800 in year three, $6,000 in year six, and $7,200 in year eight. After 10 years, the machine will have no salvage value. Required: Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year, ignore income tax considerations. Calculate the present value of Machine A & Machine B. Which machine Esquire should purchase? Note: Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round…The Capitalpoor Company is considering purchasing a business machine for $100,000. An alternative is to rent it for $35,000 at the beginning of each year. The rental would include all repairs and service. If the machine is purchased, a comparable repair and service contract can be obtained for $1,000 per year. The salesperson of the business machine firm has indicated that the expected useful service life of this machine is five years, with zero market value, but the company is not sure how long themachine will actually be needed. If the machine is rented, the company can cancel the lease at the end of any year. Assuming an income tax rate of 25%, a straight-line depreciation charge of $20,000 for each year the machine is kept, and an after-tax MARR of 10%, prepare an appropriate analysis to help the firm decide whether it is more desirable to purchase or rent.ces Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following: Machine A could be purchased for $69,000. It will last 10 years with annual maintenance costs of $2,200 per year. After 10 years the machine can be sold for $7,245. Machine B could be purchased for $57,500. It also will last 10 years and will require maintenance costs of $8,800 in year three, $11,000 in year six, and $13,200 in year eight. After 10 years, the machine will have no salvage value. Required: Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year. Ignore income tax considerations. Calculate the present value of Machine A & Machine B. Which machine Esquire should purchase? Note: Do not round intermediate calculations. Round your final answers to nearest whole dollar…
- Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following: Machine A could be purchased for $54,000. It will last 10 years with annual maintenance costs of $1,700 per year. After 10 years the machine can be sold for $5,670. Machine B could be purchased for $45,000. It also will last 10 years and will require maintenance costs of $6,800 in year three, $8,500 in year six, and $10,200 in year eight. After 10 years, the machine will have no salvage value. Required: Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year. Ignore income tax considerations. Calculate the present value of Machine A & Machine B. Which machine Esquire should purchase?Bridgewell Industries is evaluating the option of purchasing a fork-lift truck costing $60,000. If purchased, the truck will replace 4 workers, each with an average annual salary of $15,000. However, an experienced fork-lift operator will have to be hired at a salary of $20,000 per year. Fuel and maintenance expense is expected to be $10,000 per year. At the end of its 5-year life, the truck will have a market value of $10,000. Bridgewell uses straight-line depreciation and depreciates the asset to $0, assigns a 10% required rate of return for this type of investment, and has a marginal tax rate of 40%. Should the fork-lift truck be purchased? Please show all of your workEsquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following: Machine A could be purchased for $48,000. It will last 10 years with annual maintenance costs of $1,000 per year. After 10 years the machine can be sold for $5,000. Machine B could be purchased for $40,000. It also will last 10 years and will require maintenance costs of $4,000 in year three, $5,000 in year six, and $6,000 in year eight. After 10 years, the machine will have no salvage value.
