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- Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?You are planning to invest in a machine for your manufacturing facility. The machine costs P55,400, and it has an expected useful life of 5 years. You estimate that the machine will generate an annual net cash flow (revenue minus expenses) of P21,000. The interest rate is 5% per year. 1. Disregarding the revenue, what is the future value of the machine cost? 2. What is the present value of the revenue in its 5 years of useful life? Is it worth the investment compared to the machine cost? 3. What is the future value of the revenue in its 5 years of useful life? is it worth the investment compared to the future value of the machine cost? 4. Suppose that at there is a maintenance expense of P3,000 at the first year, P3,500 at the second year, P4,000 at the third year, P4,500 at the fourth year, and P5,000 at the last year. What is the present value of the maintenance expense?3. Calculate the internal rate of return for a machine that costs $550,000 and provides annual revenue of $125,000 per year for 5 years. You can assume all revenue is received once a year at the end of the year. a. Compare the IRR to the interest rate on a loan to fund the machine cost at 5.3%. Based on this information should you take on a loan to purchase this machine. Justify your answer.
- Assumption Corporation is considering replacing an obsolete machine with a new machine. The new machine would cost P250,000 and would have a ten-year useful life. The new machine would cost P12,000 per year to operate and maintain, but would save P55,000 per year in labor and other costs. The old machine can be sold now for P10,000. The simple rate of return on the new machine is closest to: a. 17.9% b. 7.5% c. 22.0% d. 7.2%Problem 2. Suppose you plan to purchase a few pumps used on construction sites. The pumps have a 10-year of life expectancy. Purchasing the pumps will cost you $1.2 million. You are expecting to earn $150,000 per year for the period of life expectancy by leasing the pumps. The interest rate is expected to be constant at 3%. a) Determine the present value (P). Show your solutions in the table below b) Should you make this investment? Discuss why?4. You have an opportunity to purchase a piece of vacant land for $30,000 cash. If you plan to hold it for 15 years and then sell it at a profit. During this period, you would have to pay annual property taxes of $600 and have no income from the property. Assuming that you would want a 10% rate of return from the investment, a) Draw a cashflow diagram. b) What net price would you have to sell it in the next 15 years?
- An operation manager expects that the new machine will generate the following streams of income: Year 1- Ᵽ 13, 240.25; Year 2 - Ᵽ 15, 780; Year 3 - Ᵽ18, 990.95; Year 4 - Ᵽ21, 500.50; Year 5 - Ᵽ25,000.00. What is the present value of these future payments if the assumed interest rate is 3.7% ? If a new technology can reduce the future cost of production in 6 years at the following rate: Ᵽ8,550, Ᵽ10,200, Ᵽ13,600, Ᵽ 15,000, Ᵽ12,500, Ᵽ9000 what is present value of the future cost of production assuming that the interest is 6.33%? If the cost of the new technology in Item No. 2 is Ᵽ 52,435.60, what is the net present value? Should you buy or not the new technology?You bought a new machine worth P 345,000.00. Research on this machine showed that it will reduce cost of production in the following sequence: Year 1 = P 22,500; Year 2 = P27,300; Year 3 = 30,500.00; Year 4 = 32,450 and Year 5 = 29,600. If the current interest rate is 7.2%. Should the machine be bought?An investor has an opportunity of borrowing sh. 1000,000 to buy a machine which will only last one year and it is written off. The rate of interest is 8% p.a.The machien will generate a revenue of sh. 1,200,000. Compute Marginal effeciency capital (MEC) and advice him on whether he should consider under taking the project or not
- A machine costs P30,000 and it has an expected useful life of 10 years. The estimated annual net cash flow of the machine (revenue minus expenses) is P15,000. The interest rate is 5% per year. 1. Disregarding the revenue, what is the future value of the machine cost? 2. What is the present value of the revenue in its 10 years of useful life? Is it worth the investment compared to the machine cost? 3. What is the future value of the revenue in its 10 years of useful life? is it worth the investment compared to the future value of the machine cost? 4. Suppose that at there is a maintenance expense of P5,000 at the first year, P5,500 at the second year, P6,000 at the third year, P6,500 at the fourth year, and P7,000 at the last year. What is the present value of the maintenance expense?Suppose XY Co buy the new machine for $20,000. It is estimated that the new machine will generate profits of $4,000 per year for its useful life of 8 years. What is its economic value?Suppose you plan on spending $100/ac on restoring a forest on bare land you plan to buy. The project is projected to yield a harvest worth $2500/ac in 30 years. After which you sell the land for $400/ac. If you want to earn at least 6% rate of return, what is your willingness to pay for the land? Assume no other costs and revenues and that all values are in real terms. Show your work solving the problems a.) $490.28 b.) $265.63 C.) $636.27 d.) $404.92 e.) none of the above
