! Draw cash flow diagrams with symbols.Show your work using conversion factornotations. You need actual calculations tomake a decision1. The manager of engineering at the 900-megawatt Hamilton NuclearPower Plant has three options to supply personal safety equipment toemployees. Two are vendors who sell the items, and a third will rent theequipment for $50,000 per year, but for no more than 3 years percontract. These items have relatively short lives due to constant use. TheMARR is 10% per year.Vendor RVendor TRentalInitial cost, $-75,000-125,000Annual upkeep cost, $/year -27,000-12,000Annual rentalcost, $ per year-50,000Salvage value, $30,000Estimated life,23Maximum years of 3

MARR = 10% Cash Flows: Year Vendor R Vendor T Rental 0 -75000 -125000 1…

Answered: Draw cash flow diagrams with symbols.…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 1PA: Your company is planning to purchase a new log splitter for is lawn and garden business. The new...

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The Pan American Bottling Co. is considering the purchase of a new machine that would increase the speed of bottling and save money. The net cost of this machine is $60,000. The annual cash flows have the following projections. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year Cash Flow 1 $ 23,000 2 26,000 3 29,000 4 15,000 5 8,000 a. If the cost of capital is 13 percent, what is the net present value of selecting a new machine? b. What is the internal rate of return?
You are working as a finance manager for a construction company. The company is considering to buy a new machine which is expected to boost its revenue. A supplier offered two alternative machinery options for the company’s choice. Each machine will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 10.5%. The cash flows of the projects are provided below. Machinery option 1 Machinery option 2 Cost $235,000 $272,000 Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 85 000 91 000 98 000 94 000 86 000 93 000 95 000 98 000 97 000 83 000 Required: Identify which option of equipment should the company accept based on Profitability Index (PI) method? Identify which machinery option should the company accept based on simple pay back method if the payback criterion is maximum 2.5 years? If the company’s management would like to know how much each machinery option can improve the…
A nursery would like to build another commercial greenhouse to expand its operations. It estimates that building another greenhouse will cost $220,000. To operate another greenhouse, the nursery estimates an additional labor and utilities will cost $40,000 per year. The greenhouse is expected to produce an additional $80,000 of revenue at the end of year 1; this revenue is expected to increase by $20,000 each year. Choose a cash flow diagram. A В $220K $160K $140K $120K $100K $80K (+) (+) 1 5 End of Year 5 2 3 4 1 2 3 (-) (-) $80K $100K $120K $140K $160K $220K 4,
please show the cash flow diagram 4. A new biomaterial used for prosthetic devices was developed by engineers in the laboratory that requires production equipment to start manufacturing. Two different equipment are considered. Equipment A will have an initial cost of $125,000 and annual cost of $55,000. Equipment B will have an initial cost of $175,000 and an annual cost of $35,000. For 20% MARR which process should be selected. What is the incremental rate of return?
Covington Pharmacies has decided to automate its insurance claims process. Two networked computer systems are being considered. The systems have an expected life of two years. The net cash flows associated with the systems are as follows. The cash benefits represent the savings created by switching from a manual to an automated system. The companys cost of capital is 10 percent. Required: 1. Compute the NPV and the IRR for each investment. 2. Show that the project with the larger NPV is the correct choice for the company.
Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required: 1. Patz Corporation is considering the purchase of a computer-aided manufacturing system. The cash benefits will be 800,000 per year. The system costs 4,000,000 and will last eight years. Compute the NPV assuming a discount rate of 10 percent. Should the company buy the new system? 2. Sterling Wetzel has just invested 270,000 in a restaurant specializing in German food. He expects to receive 43,470 per year for the next eight years. His cost of capital is 5.5 percent. Compute the internal rate of return. Did Sterling make a good decision?
Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?
Assume a company is going to make an investment of $450,000 in a machine and the following are the cash flows that two different products would bring in years one through four. Which of the two options would you choose based on the payback method?
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?
The production department is proposing the purchase of an automatic insertion machine. It has identified three machines and has asked the accountant to analyze them to determine which one has the best cash payback. Machine A Machine B Machine C Annual cash flow $40,000 $50,000 $75,000 Average investment 300,000 250,000 500,000 a.Machine A b.Machine C c.Machine B d.Machines B and C have the same preferred payback period.
Alfredo Auto Parts is considering investing in a new forming line for grille assemblies. For a five-year study period, the cash flows for two separate designs are shown below. Create a spreadsheet that will calculate the present worths for each project for a variable ALARR. Through trial and error, establish the ALARR at which the present worths of the two projects are exactly the same. Cash Flows for Grille Assembly Project Automated Line Manual Line Disburse- Net Cash | Disburse- Net Cash Year | ments | Receipts | Flow ments | Receipts Flow 0 [e1 500000 [€ 0 [-€1 500 000 [€1 000 000 | € o[ -€1 000 000 1 50 000 | 300 000 250000 [ 20000 [ 200 000 180 000 2 60 000 | 300 000 240000 [ 25000 [ 200 000 175 000 3 70 000 | 300 000 230 000 30 000 | 200 000 170 000 4 80000 [ 300 000 220 000 35000 | 200 000 165 000 5 90 000 [ 800 000 710000 40000 [ 200 000 160 000
The Pan American Bottling Company is considering the purchase of a new machine that would increase the speed of bottling and save money. The net cost of this machine is $72,000. The annual cash flows have the following projections. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year Cash Flow 1 $ 35,000 2 38,000 3 35,000 4 28,000 5 12,000 If the cost of capital is 12 percent, what is the net present value of selecting a new machine? Note: Do not round intermediate calculations and round your final answer to 2 decimal places. What is the internal rate of return? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Should the project be accepted? multiple choice Yes No

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