You are thinking of making an investment in a new factory. The factory will generate revenues of $1,960,000 per year for as long as you maintain it. You expect that themaintenance costs will start at $90,160 per year and will increase 5% per year thereafter. Assume that all revenue and maintenance costs occur at the end of the year.You intend to run the factory as long as it continues to make a positive cash flow (as long as the cash generated by the plant exceeds the maintenance costs). The factorycan be built and become operational immediately and the interest rate is 6% per year.a. What is the present value of the revenues? -b. What is the present value of the maintenance costs?c. If the plant costs $19,600,000 to build, should you invest in the factory?EIER

This is a case of perpetuity. Perpetuity is a stream of cash flows that continues forever or that…

Answered: You are thinking of making an…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Company Z has developed an air pollution control system that can reduce emissions from its industrial processes. By implementing this system, the company anticipates an annual cost savings of 20% on fines and regulatory compliance. Currently, they spend $40,000 per year on compliance-related expenses. To invest in the new system, how much can Company Z afford to spend now, assuming an annual interest rate of 8% over the next 5 years? Show calculation and draw the cash flow diagram.
You have the opportunity to expand your business by purchasing new equipment for $152,000. The equipment has a useful life of 9 years. You expect to incur cash fixed costs of $79,000 per year to use this new equipment, and you expect to incur cash variable costs in the amount of 5% of annual revenues. Your cost of capital is 6%. Required: 1. Assume instead you expect a cash revenue stream for this investment. Based on this estimated revenue stream, Year 1 $ 105,000 Year 2 115,000 Year 3 110,000 Year 4 90,000 Year 5 160,000 Year 6 150,000 Year 7 160,000 Year 8 110,000 Year 9 160,000 What are the payback and discounted payback periods for this investment?
A dry cleaning store is expected to make annual cash flows forever. The cost of capital for the store is 14.01 percent. The next annual cash flow is expected in one year from today and all subsequent cash flows are expected to grow annually by 3.49 percent. What is the value of the dry cleaning store if the cash flow in 5 years from today is expected to be $236,000.007 O $1,955,702.16 (plus or minus 10 dollars) O $1,408,521.54 (plus or minus 10 dollars) O $1,164,612.73 (plus or minus 10 dollars) O $2,243,346.01 (plus or minus 10 dollars) $1.084,511.06 (plus or minus 10 dollars)
Suppose a company could invest in a machine that would be able to produce $1,000,000 worth of saleable merchandise in one year, $2,000,000 for another two years then $1,000,000 for another three years. If the required rate of return for the company is 8%, what is the value of the machine's future cash flows to the company today?
Formasa Plastics has major fabrication plants in Manila and Pampanga. The president wants to know the equivalent future worth of ₱1 million capital investments each year for 8 years, starting 1 year from now. Formasa capital earns at a rate of 14% per year. Draw cash flow Diagram. Find the value of Future worth?
a company is considering the purchase of a new machine for 480,000. Management predicts that the machine can produce sales of 180,000 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling 120,000 per year including depreciation of 30,000 per year. The company's tax rate is 40%. What is the payback period for the new machine?
Cecil company is considering the of a new machine. The machine cost $227,500 and will generate a yearly cash inflow of $35,000. what is the payback period? Requirement: what is the payback period?
The manager of a production system expects to spend $100,000 the first year with amounts increasing by $10,000 each year. Income is expected to be $400,000 the first year, increasing by $50,000 each year. a) Draw cash flow diagrams of expenditures and income separately over a 5 year period at an interest rate of 10% per year. b) Detemine the present worth of the company's net cash flow (present worth expenditure). Please write fomula and show your solution step by step. Use compound interest tables. = present income- present
A factory costs $810,000. You reckon that it will produce an inflow after operating costs of $171,000 a year for 11 years. a. If the opportunity cost of capital is 7%, what is the net present value of the factory?
You are considering building a new facility. It will cost $98.8 million upfront. After that, it is expected to produce profits of $29.3 million at the end of every year. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 8.9%. Calculate the IRR. Question content area bottom Part 1 The NPV of this investment opportunity is $enter your response here million. (Round to one decimal place.) The IRR of the project is enter your response here%.
You are considering whether or not to purchase another new air conditioner refrigerant recovery machine that costs RM13600.00 per piece. He knows that his total earnings for the past three years (sales for air conditioning service) have averaged RM33600.00 per year for 5 working days a week and have remained steady. You are sure that you will be able to sell another 200 air conditioning service per year for RM80.00 labor a piece as a result of having this new capability. You decided: i. Calculate and explain what would your shop ROI be over three years by taking this opportunity based on the information. ii. Calculate the ROI percentage (%) for the new machine's sales.
You are preparing to produce some goods for sale. You will sell them in one year and you will incur costs of $86,000 immediately. If your cost of capital is 7.3%, what is the minimum dollar amount you need to sell the goods for in order for this to be a non-negative NPV? The minimum dollar amount is $. (Round to the nearest dollar)

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