Two alterative machines will produce the same product, but one is capable of higher-quality work, which can be expected to retum greater revenue. The following are relevant data. Determine which is the better allemative, assuming repeatability and using SL depreciation, an income tax rate of 26%, and an after-tax MARR of 11% Capital investment Life Calculate the AWW value for the Machine A AW (11%) - Round to the nearest dollar) Terminal BV (and MV) Annual receipts Annual expenses Machine A $18,000 11 years $4,000 $157,000 $129.000 Click the icon to view the interest and annuity table for discrete compounding when the MARR is 11% per year. Machine $29,000 6 years 50 $178,000 $164,000

Two alterative machines will produce the same product, but one is capable of higher-quality work, which can be expected to retum greater revenue. The following are relevant data. Determine which is the better allemative, assuming repeatability and using SL depreciation, an income tax rate of 26%, and an after-tax MARR of 11% Capital investment Life Calculate the AWW value for the Machine A AW (11%) - Round to the nearest dollar) Terminal BV (and MV) Annual receipts Annual expenses Machine A $18,000 11 years $4,000 $157,000 $129.000 Click the icon to view the interest and annuity table for discrete compounding when the MARR is 11% per year. Machine $29,000 6 years 50 $178,000 $164,000

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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1. Prepare a differential anaysis comparing present machine (Alt. 1) to new machine (Alt. 2). Analysis should indicate total differential income over the six-year period if the new machine is purchased. 2. Which Alternative would you propose? What other factors should be considered? 3. What if you could invest the funds required to purchase the new equipment (cost less proceeds from sale of old machine) at 4% per year. Does this change your viewpoint? What does this indicate of the limitations of this method for evaluating an investment proposal?
a. Cobre Company is considering the purchase of new equipment that will speed up the process for extracting copper. The equipment will cost $3,800,000 and have a life of 5 years with no expected salvage value. The expected cash flows associated with the project are as follows: Year Cash Revenues Cash Expenses $6,000,000 $4,800,000 6,000,000 4,800,000 3 6,000,000 4,800,000 4 6,000,000 4,800,000 6,000,000 4,800,000 b. Emily Hansen is considering investing in one of the following two projects. Either project will require an investment o $75,000. The expected cash revenues minus cash expenses for the two projects follow. Assume each project is depreciable. Year Project A Project B 1. $2,500 $22,500 2 30,000 30,000 45,000 45,000 4 75,000 22,500 75,000 22,500 c. Suppose that a project has an ARR of 30% (based on initial investment) and that the average net income of the project is $220,000. d. Suppose that a project has an ARR of 50% and that the investment is $250,000. 3.
Q which project will be the best using (EAW). S Using the Benefit-Cost Ratio Method, Find what is the best alternative from the projects listed below if u know that (-10%) for both project. Details Initial investment (CU) Annual revenue (CU/year) Annual expense (CU/year) Project life (year) Investment due to replacement of some machines every 3 years. Salvage value (CU) Purchasing a new machine in the seventh year. 0 -113 000 Alternative 1 300 000 50 000 15 500 1 30 000 5 13 500 Q5:A person is planning a new business, the initial investment and cash flow pattern for a new business are shown below: Non Non 2 Year Cash flow (CU) The expected life of the project is five year.Find the rate of return for a new business. 30 000 3 30 000 Alternative 2 200 000 75 000 29 000 10 Non 4 30 000 22 000 13 000 5 30 000
These questions are intended for self-study. Click the [solution] box to reveal a detailed solution. Two mutually exclusive investment projects have been presented to your company. Project A’s rate of return is 6%, and Project B’s rate of return is 8%. The cost of Project A is less than the cost of Project B. Incremental analysis yields a rate of return of 4%. If both alternatives have the same useful life and the MARR is 5%, which project should be chosen?
A project requires an investment of $2,500 and has a net present value of $430. If the internal rate of return is 10%, what is the profitability index for the project? Multiple Choice 0.70 0.25 1.17 2.33
The following data have been estimated for two feasible investments, A and B, for which revenues as well as costs are known and which have different lives. If the minimum attractive rate of return is 10%, solve to find which feasible alternative is more desirable by using equivalent annual worth methods. Use the repeatability assumption. A B Investment(First) cost, Rs 3,500 5,000 Annual Revenue, Rs 1,900 2,500 Annual Cost, Rs 645 1,383 Useful life(years) 4 8 Salvage value 0 0
Calculate the NPV of the proposed investment, using the inputs suggested in this case. How sensitive is this NPV to future sales volume? *The answer is 15.7 million; please show me the work.
Which alternative should be selected? Use a challenger-defender rate of return analysis. The New England Soap Company is considering adding some processing equipment to the plant to aid in the removal of impurities from some raw materials. By adding the processing equipment, the firm can purchase lower-grade raw material at reduced cost and upgrade it for use in its products. Four different pieces of processing equipment with 15-year lives are being considered: A В D Initial investment S8,500 $18,500 26,500|$30,000 Annual saving in materials costs 3,500 |6,000 7,400 9,000 Annual operating cost 2,100 |3,000 3,200 |4,100
Assume that a company is considering purchasing a machine for $50,500 that will have a five-year useful life and no salvage value. The machine will lower operating costs by $17,000 per year. The company's required rate of return is 18%. The profitability index for this investment is closest to: Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. Multiple Choice C O 0.95. 1.01. 1.05. 1.11.
Svalbard Swing Company uses the accounting rate of return to evaluate investment projects. Management accepts projects that earn a return of 14% or more. They are considering two alternative investment proposals with the following data: Initial Investment Useful Life Estimated annual net income Salvage Value Depreciation Method Only Statement #1 is true Only Statement #2 is true Both Statements are true Project #1 $300,000 Evaluate the following statements: 1. The accounting rate of return for Project #1 is 10% 2. Using the accounting rate of return, Svalbard Company will only accept Project #2 O Both Statements are false 5 years $30,000 $100,000 SL Project #2 $400,000 8 years $46,000 $60,000 SL
Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of 15%. Use the present value table appearing above. Processing Mill Electric Shovel EE Present value of net cash flow total Less amount to be invested Net present value Which project should be favored?
The table below shows internal rate of return for three investment projects A, B and C and there differences. By capital investment, A С> В O b. B > C>A O C. A> B>C O d. C>A>B O e. C> B> A

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