Winthrop Company has an opportunity to manufacture and sell a new product for a five-year period. To pursue this opportunity, thecompany would need to purchase a plece of equipment for $130,000. The equipment would have a useful life of five years and a$10,000 salvage value. The CCA rate for the equipment is 30%. After careful study. Winthrop estimated the following annual costs andrevenues for the new product:Sales revenues:Variable expensesFixed expenses$250,000$130,000$ 70,000The company's tax rate is 30% and its after-tax cost of capital is 10%.Required:1. Compute the net present value of the project. (Hint Use Microsoft Excel to calculate the discount factor(s).) (Do not roundintermediate calculations and PV factor. Round the final answers to the nearest whole dollar. Negative value should be indicatedwith minus sign.)2. Would you recommend that the project be undertaken?1.Net present value2Would you recommend that the project be undertaken?

Let us dissect the computations and offer a more comprehensive elucidation of the net present value…

Answered: Winthrop Company has an opportunity to…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate is 15%. After careful study, Oakmont estimated the following costs and revenues for the new product: Cost of equipment needed Working capital needed i Overhaul of the equipment in two years Salvage value of the equipment in four years: Annual revenues and costs: Sales revenues $ 130,000 $ 60,000 $ 8,000 $ 12,000 $ 250,000 $ 120,000 $ 70,000 Variable expenses Fixed out-of-pocket operating costs When the project concludes in four years the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 128-1 and Exhibit 128-2, to determine the appropriate discount factor(s) using tables. Net present value Required: Calculate the net present value of this investment opportunity. (Round your final answer to the nearest whole dollar amount.)
Calculate the hourly operating cost (under average conditions) for a 180- horsepower motor grader which costs $230,000 and is used in general contracting for 1500 hours per year for 10 years. The per gallon price of diesel fuel is $2.90. Salvage value is estimated to be $85,000 and a set of tires costs $5,000 for 2000 hours of average useful life. Assume a repair factor of 40% based on 10,000 hours of useful life as a percentage of hourly straight-line depreciation. (Use discount rate of 8%).
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate is 17%, After careful study, Oakmont estimated the following costs and revenues for the new product: Cost of equipment needed Working capital needed Overhaul of the equipment in year two Salvage value of the equipment in four years Annual revenues and costs: Sales revenues Variable expenses Fixed out-of-pocket operating costs $ 165,000 $ 67,000 $ 10,000 $ 13,000. $ 320,000 $ 155,000 $ 77,000 When the project concludes in four years the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 128-1 and Exhibit 128-2, to determine the appropriate discount factor(s) using tables. (Use the tables to get your discount factors. The linked tables are the same tables as the ones in your course packet. If you calculate discount factors using Excel or a financial calculator, your answer may be different enough due to rounding…
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate is 16%. After careful study, Oakmont estimated the following costs and revenues for the new product: Cost of equipment needed Working capital needed $ 170,000 $ 68,000 Overhaul of the equipment in two years $ 12,000 $ 16,000 Salvage value of the equipment in four years Annual revenues and costs: Sales revenues $ 330,000 Variable expenses $ 160,000 $ 78,000 Fixed out-of-pocket operating costs When the project concludes in four years the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Required: Calculate the net present value of this investment opportunity. (Round your final answer to the nearest whole dollar amount.)
A company is considering supplying employees with company cars. Employee travel is expected to be a total of 30,000 miles per year for all employees. Supplying employees with company cars would involve the following cost components: Car purchase: $22,000 with an estimated 3-year life Salvage value: $5000 Insurance cost: $1000/year Operating and maintenance expenses: $0.22 per mile The company uses a MARR of 10%. The total cost per mile of providing company cars to employees is: $ per mile (Round the answer to two decimal places. Do not enter the dollar symbol or the words per mile in you answer. If the number is a fraction less than one, include the leading zero in the answer. eg. 0.12) The company pays employees $0.40 per mile to use their own car. Compare this with the number you calculated in the previous question. The company should provide cars to its employees? Type Yes or No for the decision:
Machines that have the following costs are under consideration for a new manufacturing process. Compute the Equivalent Annual Worth with an interest rate of 8%, compounded semiannually. The machine last 4 years. First cost: $40,000 Semiannual Operating cost: $8,970 Semiannual incomes: $14,000 Salvage value: $10,000 a. EAW = $2,285 Ob. EAW = $175 O c. EAW = $1,958 O d. EAW $ 21,745
Natural Foods Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The new garden tool is expected to generate additional annual sales of 7,600 units at $38 each. The new manufacturing equipment will cost $123,500 and is expected to have a 10-year life and a $9,500 residual value. Selling expenses related to the new product are expected to be 5% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis: Direct labor $6.50 Direct materials 21.00 Fixed factory overhead-depreciation 1.50 Variable factory overhead 3.30 Total $32.30 Determine the net cash flows for the first year of the project, Years 2–9, and for the last year of the project. Use the minus sign to indicate cash outflows. Do not round your intermediate calculations but, if required, round your final answers to the nearest dollar. Natural Foods Inc.Net Cash Flows Year 1 Years 2-9 Last Year Initial investment $fill in the blank 1…
Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $495,000 cost with an expected four-year life and a $10,000 salvage value. Additional annual information for this new product line follows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Machinery Selling, general, and administrative expenses Required: 1. Determine income and net cash flow for each year of this machine's life. $ 1,960,000 1,502,000 121,250 167,000 2. Compute this machine's payback period, assuming that cash flows occur evenly throughout each year. 3. Compute net present value for this machine using a discount rate of 8%. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Determine income and net cash flow for each year of this machine's…
(engineering economic) a company considers purchasing a machine for $3000. The tool is planned to be used for 10 years and after that it will be sold for 25% of its purchase price. With the purchase of the tool, the company must incur operating costs of $ 400 per year. If the owner of the company wants a return of 10% annually on the investment made, what is the uniform annual income for at least 10 years that must be obtained from the heavy equipment so that the wishes of the owner of the company are fulfilled?
Cardinal Company is considering a five-year project that would require a $2,890,000 investment in equipment with a useful life of five years and no salvage value. The company's discount rate is 12%. The project would provide net operating income in each of five years as follows: Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses $2,739,000 1, 100, 000 1,639,000 $641,000 578,000 1, 219, 000 $ 420,000 Net operating income Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table. 4. What is the project's net present value? (Round discount factor(s) to 3 decimal places and final answer to the nearest whole dollar amount.) Net present value
Godo
Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $491,000 cost with an expected four-year life and a $20,000 salvage value. Additional annual information for this new product line follows. (PV of $1. EV of $1. PVA of $1, and EVA of $1) (Use appropriate factor(s) from the tables provided.) Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Machinery Selling, general, and administrative expenses Required: 1. Determine income and net cash flow for each year of this machine's life. 2. Compute this machine's payback period, assuming that cash flows occur evenly throughout each year. 3. Compute net present value for this machine using a discount rate of 7%. $ 1,990,000 1,509,000 117,750 162,000 Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Compute net present value…

SEE MORE QUESTIONS

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS