A company engaging in selling of laboratory equipment estimates that profit from sales should increase by *2,00, 000 per year if a mobile demonstration unit is built. A large unit with sleeping accommodation for the driver will cost 9, 70,000 while a smaller unit without sleeping cabin will be Rs. 6,30,000. Salvage values for the large and small units after 5 years will be, 197,000 and Rs.35000 respectively. Lodging costs saved by the larger unit should amount 1, 10,000 annually, but its transportation costs will exceed those of the smaller unit by 31, 000. With the money at 9% should a mobile demonstration unit be built? And if so which size is preferable? Use net annual worth to determine which is better and show all the steps and working

A company engaging in selling of laboratory equipment estimates that profit from sales should increase by *2,00, 000 per year if a mobile demonstration unit is built. A large unit with sleeping accommodation for the driver will cost 9, 70,000 while a smaller unit without sleeping cabin will be Rs. 6,30,000. Salvage values for the large and small units after 5 years will be, 197,000 and Rs.35000 respectively. Lodging costs saved by the larger unit should amount 1, 10,000 annually, but its transportation costs will exceed those of the smaller unit by 31, 000. With the money at 9% should a mobile demonstration unit be built? And if so which size is preferable? Use net annual worth to determine which is better and show all the steps and working

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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The production department is proposing the purchase of an automatic insertion machine. It has identified 3 machines, each with an estimated life of 10 years. Which machine offers the best internal rate of return? Annual net cash flows Average investment Machine A only Machine B only Machine C only O Machines A and B Machine A $ 50,000 250,000 Machine B $ 40,000 300,000 Machine $ 75,000 500,000
B) Pakar & Son Sdn Bhd is looking to invest in a new project, with a project life of 4 years. The project involves a new manufacturing equipment that makes inline skate wheels. The marketing department estimates a total sale of 6,000 units each year at a price of RM300 per unit. Variable cost is about 40% from the selling price. Fixed cost is estimated at RM450,000 per year. The new equipment will cost RM1,500,000. The machine will be depreciated to zero over its 6-year economic life using the straight-line method. At the end of year 4, the equipment can be sold at RM650,000. The project also requires an investment of RM525,000 in net working capital at the start and it will be recovered in full at the end of the project's life. The corporate tax rate is 35 percent. The required rate of return for the project is 25%. i) What is the initial cost of this project? ii) Determine the annual cash flow of this project from year 1 to year 4.
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Equipment A has a cost of Rs.150.000 and net cash flow of Rs.40,000 per year for six years. A substitute equipment B would cost Rs.100,000 and generate net cash flow of Rs.28,000 per year for six years. The required rate of return for both the equipments is 10 percent. Calculate the IRR and NPV for the equipments. Which equipment should be accepted and why?
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Solve for the rate of return and Explain
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