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.

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.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 17EB: Caduceus Company is considering the purchase of a new piece of factory equipment that will cost...

See similar textbooks

Similar questions

Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $420,000 and will generate $95,000 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.
Home Garden Inc. is considering the construction of a distribution warehouse in West Virginia to service its east coast stores based on the following estimates: a. Determine the net present value of building the warehouse, assuming a construction cost of 20,000,000, an annual net cost savings of 4,000,000, and a desired rate of return of 14%. Use the present value tables provided in Appendix A. b. Determine the net present value of building the warehouse, assuming a construction cost of 25,000,000, an annual net cost savings of 2,500,000, and a desired rate of return of 14%. Use the present value tables provided in Appendix A. c. Interpret the results of parts (a) and (b).
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?
Consolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and provide the following cash flows over the next five years: $88,000, 92,000, $91,000, $72,000, and $71,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel, see Appendix C.
The Ham and Egg Restaurant is considering an investment in a new oven that has a cost of $60,000, with annual net cash flows of $9,950 for 8 years. The required rate of return is 6%. Compute the net present value of this investment to determine whether or not you would recommend that Ham and Egg invest in this oven.
A restaurant is considering the purchase of new tables and chairs for their dining room with an initial investment cost of $515,000, and the restaurant expects an annual net cash flow of $103,000 per year. What is the payback period?
Jasmine Manufacturing is considering a project that will require an initial investment of $52,000 and is expected to generate future cash flows of $10,000 for years 1 through 3, $8,000 for years 4 and 5, and $2,000 for years 6 through 10. What is the payback period for this project?
A new production system for a factory is to be purchased and installed for $135331 . This system will save approximately 300,000kWh of electric power each year for a 6-year period. Assume the cost of electricity is $0.10 per kWh , and factory MARR is 15% per year, and the salvage value of the system will be $8662 at year 6 . Using the PW method to analyzes if this investment is economically justified A- calculate the PW of the above investment and insert the result below. _______________________
A company is considering constructing a plant to manufacture a proposed new product. The land costs 300,000.00, the building costs 600,000.00, the equipment costs 250,000.00 and 100,000.00 additional working capital is required. It is expected that the product will result in sales of P750,000 per year for 10 years, at which time the land can be sold for 400,000.00, the building for 350,000.00 and the equipment for 50,000.00. All of the working capital would be recovered at the end of year 10. The annual expenses for labor, materials, and all other items are estimated to total 475,000.00. If the company requires a MARR of 15% per year on projects of comparable risk, determine if it should invest in the new product line. Evaluate using all methods. a.) Rate of Return Please answer in this format. Given: Formula (Please use this formula): net annual profit Rate of return capita invested Note: If there is a required value before using the given formula, then solve for it to be able to use…
A company is considering constructing a plant to manufacture a proposed new product. The land costs 300,000.00, the building costs 600,000.00, the equipment costs 250,000.00 and 100,000.00 additional working capital is required. It is expected that the product will result in sales of P750,000 per year for 10 years, at which time the land can be sold for 400,000.00, the building for 350,000.00 and the equipment for 50,000.00. All of the working capital would be recovered at the end of year 10. The annual expenses for labor, materials, and all other items are estimated to total 475,000.00. If the company requires a MARR of 15% per year on projects of comparable risk, determine if it should invest in the new product line. Evaluate using Payback Period.. Payback Period Please answer in this format. Given: Formula (Please use this formula): Payout period (years) = investment – salvage value over net annual cash flow Note: If there is a required value before using the given formula, then…
Steamboat Springs Furniture, Inc., is considering purchasing a new finishing lathe that costs $61,515.00. The lathe will generate revenues of $99,298.00 per year for five years. The cost of materials and labor needed to generate these revenues will total $50,526.00 per year, and other cash expenses will be $10,290.00 per year. The machine is expected to sell for $9,266.00 at the end of its five-year life and will be depreciated on a straight-line basis over five years to zero. Steamboat Springs' marginal tax rate is 36.00 percent, and its cost of capital is 14.00 percent. What is the NPV of the project?
A new production system for a factory is to be purchased and installed for $135331. This system will save approximately 300,000 kWh of electric power each year for a 6-year period. Assume the cost of electricity is $0.10 per kWh, and factory MARR is 15% per year, and the salvage value of the system will be $8662 at year 6. Using the PW method to analyzes if this investment is economically justified A- calculate the PW of the above investment and insert the result below.