Exercise 24-6 (Algo) Payback period, equal cash flows, and accounting rate of return LO P1, P2 B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $120,000 and has a 12-year life and no salvage value. The expected annual income for each year from this equipment follows. Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Equipment Selling, general, and administrative expenses Income (a) Compute the annual net cash flow. (b) Compute the payback period. $ 75,000 40,000 10,000 7,500 $ 17,500
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- REPLACEMENT CHAIN The Fernandez Company has an opportunity to invest in one of two mutually exclusive machines that will produce a product the company will need for the next eight years. Machine A costs 10 million but will provide after-tax inflows of 4 million per year for 4 years. If Machine A were replaced, its cost would be 12 million due to inflation and its cash inflows would increase to 4.2 million due to production efficiencies. Machine B costs 15 million and will provide after-tax inflows of 3.5 million per year for 8 years. If the WACC is 10%, which machine should be acquired? Explain.Average rate of returnnew product Hana Inc. is considering an investment in new equipment that will be used to manufacture a smart-phone. The phone is expected to generate additional annual sales of 10,000 units at 300 per unit. The equipment has a cost of 4,500,000, residual value of 500,000, and a 10-year life. The equipment can only be used to manufacture the phone. The cost to manufacture the phone follows: Determine the average rate of return on the equipment.Question 23 Jubail Corporation has just purchased a new CAD Machine for $35,000 to replace old machine that had a salvage value of $ 15,000. The useful life of the new machine is 10 years. The machine is 12%: generates annual sales of $10,000 and has annual maintenance cost of $5,000. Calculate the payback period using Conventional Payback period, If Jubail's MARR (minimum acceptable rate of return) O A. 8.12 Years O B. 4.00 Years O C. 6.57 Years ve Answer O D. None of these
- 1 Jlgu übja 1 Flint Systems is considering investing in production- management software that costs $630,000, has $67,000 residual value, and leads to cost savings of $1,650,000 per year over its five-year life. Calculate the average amount invested in the asset that should be used for calculating the accounting rate of return $697,000 .A $348,500 .B O $67,000 .c O $630,000 .DRequired information Problem 14.056 The two machines shown are being considered for a chip manufacturing operation. Assume the MARR is a real return of 14% per year and that the inflation rate is 6.7% per year. A B Machine First Cost, $ -146,000 -820,000 -5,000 -70,000 M&O, $ per year Salvage Value, $ 40,000 200,000 Life, years 5 00 Problem 14.056.a: Compare two alternatives based on their AW values without inflation consideration Which machine should be selected on the basis of an annual worth analysis if the estimates are in constant-value dollars? What is the annual worth of the selected alternative? Select machine (Click to select]: wwwwwwwwwwww wwwwww... The annual worth of the alternative is $QUESTION 5 A company is thinking about marketing a new product. Up- front costs to market and develop the product are $11.83 Million. The product is expected to generate profits of $1.48 million per year for 29 years. The company will have to provide product support expected to cost $271554 per year in perpetuity. Furthermore, the company expects to invest $31163 per year for 10 years for renovations on the product. This investing would start at the end of year 7. Assume all profits and expenses occur at the end of the year. Calculate the NPV of this project if the interest rate is 7.66%.
- Question 7 A company can invest in two alternatives: Machine Eco and Machine Top. The controlling department provides the following data. Eco total annual costs annual sales 3.600.000,00 € 4.000.000,00 € 3.000.000,00 € € 8 purchasing price machine residual value useful life (years) The cost of capital are 10%. How would you decide using the • profit comparison calculation and the profitability comparison? When will the machines be amortized? Question 8 Top 3.700.000,00 € 4.200.000,00 € 4.500.000,00 € € 8 Please refer to question no. 7. What would be the results Eco had a residual value of € 500.000,-- and Top of € 600.000,--?QUESTION 5 A company is thinking about marketing a new product. Up-front costs to market and develop the product are $14.56 Million. The product is expected to generate profits of $1.39 million per year for 26 years. The company will have to provide product support expected to cost $294051 per year in perpetuity. Furthermore, the company expects to invest $40821 per year for 11 years for renovations on the product. This investing would start at the end of year 7. Assume all profits and expenses occur at the end of the year. Calculate the NPV of this project if the interest rate is 7.45%. NOTE: Answer in $. If your answer is 220M, you must answer 220000000.0000. HINT. Compute the present value of all cash flows and then combine them.QUESTION 23 An automobile company needs to decide of outsourcing shafts or producing shafts in the company. If the company outsource the shafts, the shafts could be purchased ein the first year for $30 per shaft but the price of shaft for the subsequent years will increase by 5% from the previous year. If the company decide to produce the shafts, an investment of $3,000,000 needed for equipment and upgrades. The total annual cost associated with production (e.g. fixed, variable, labor and material cost) is $1,000,000. The annual demand is 40,000 shafts for the next 7 years. The new equipment purchased will have a salvage value of $450,000 at the end of year 7. If the company interest rate is 5%, which of the following statements is correct? O The company should outsource the shafts and the annual equivalent savings is $91,564 O The company should produce the shafts and the annual equivalent savings is $91,564 O The company should outsource the shafts since the AEC per unit from…
- PROBLEM 1 (20%) You are evaluating a new product launched in Singapore that costs $896.000. It has an eight- year life and has no salvage value. By assuming the depreciation is straight-line to zero over the life of the project, you project that the sales will be at 100,000 units per year. Based on your estimation, the price per unit is $40, variable cost per unit is $25, fixed costs are $900,000, and tax rate is 35%. The required return on this project is 15%. a. Calculate the accounting break-even point. What is the degree of operating leverage at the accounting break-even point? b. Calculate the base-case cash flow and NPV. What is the sensitivity of NPV to changes in the sales figure? Explain what your answer tells you about a 5000 unit decrease or increase in the projected sales.QUESTION ONEETM Co is considering investing in machinery costing K150,000 payable at the start of firstyear. The new machine will have a three-year life with K60,000 salvage value at the end of 3 years. Other details relating to the project are as follows.Year 1 2 3 Demand (units) 25,500 40,500 23,500 Material cost per unit K4.35 K4.35 K4.35 Incremental fixed cost per year K45,000 K50,000 K60,000Shared fixed costs K20,000 K20,000 K20,000The selling price in year 1 is expected to be K12.00 per unit. The selling price is expected to rise by 16% per year for the remaining part of the project’s life.Material cost per unit will be constant at K4.35 due to the contract that ETM has with its suppliers. Labor cost per unit is expected to be K5.00 in year 1 rising by 10% per year beyond the first year. Fixed costs (nominal) are made of the project fixed cost and a share of head office overhead. Working capital will be…Exercise 24-2 (Algo) Payback period, equal cash flows, and depreciation adjustment LO P1 Quary Company is considering an investment in machinery with the following information. Initial investment Useful life Salvage value Expected sales per year Required A Required B (a) Compute the investment's annual income and annual net cash flow. (b) Compute the investment's payback period. $ 380,000 Complete this question by entering your answers in the tabs below. Annual Amounts 9 years $ 20,000 19,000 units Expenses Materials, labor, and overhead (except depreciation) Depreciation-Machinery Selling, general, and administrative expenses Selling price per unit Compute the investment's annual income and annual net cash flow. Income Net cash flow Required A $ Income 0 $ Cash Flow Required B > 0 $ 85,500 40,000 9,500 $ 10