A company is evaluating a possible replacement of an old machine that has been in use since it was purchased new for $40,000 on December 3, 2016. Today, howe the machine is worth $20,000. If this machine is kept, an engineer estimates that its Market Values will be $9,000 a year from now, and S8,000 two years from now. the other hand, Operating and Maintenance Costs are expected to be $5,000 for the upcoming year (until December 3, 2022) and $6,100 for the year after (until December 3, 2023). MARR is 10%. (a) The Annual Equivalent Cost if the machine is kept for one year (ie, until December 3, 2022) is $ (b) The Annual Equivalent Cost if the machine is kept for two years (i.e, until December 3, 2023) is $ (c) The Economic Service Life of the machine is • year(s). NOTE: Please enter your answers to parts (a) and (b) to two decimal places.

A company is evaluating a possible replacement of an old machine that has been in use since it was purchased new for $40,000 on December 3, 2016. Today, howe the machine is worth $20,000. If this machine is kept, an engineer estimates that its Market Values will be $9,000 a year from now, and S8,000 two years from now. the other hand, Operating and Maintenance Costs are expected to be $5,000 for the upcoming year (until December 3, 2022) and $6,100 for the year after (until December 3, 2023). MARR is 10%. (a) The Annual Equivalent Cost if the machine is kept for one year (ie, until December 3, 2022) is $ (b) The Annual Equivalent Cost if the machine is kept for two years (i.e, until December 3, 2023) is $ (c) The Economic Service Life of the machine is • year(s). NOTE: Please enter your answers to parts (a) and (b) to two decimal places.

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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Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following: Machine A could be purchased for $22,000. It will last 10 years with annual maintenance costs of $800 per year. After 10 years the machine can be sold for $2,310. Machine B could be purchased for $20,000. It also will last 10 years and will require maintenance costs of $3,200 in year three, $4,000 in year six, and $4,800 in year eight. After 10 years, the machine will have no salvage value. Required: Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year. Ignore income tax considerations. Calculate the present value of Machine A & Machine B. Which machine Esquire should purchase? Note: Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round…
The ABC Corporation is considering purchasing a machine to manufacture mobile phones. The purchase of this machine will cause an increase in earnings before depreciation and taxes of $280,000 per year. The machine has a purchase price of $500,000 and it would cost an additional $20,000 to install this machine properly. In addition, the proper operation of this machine needs an increase of working capital of $30,000. The machine has an expected life of 5 years, and it will have a salvage value of $70,000. The company uses straight-line depreciation method; it faces a 25% marginal tax rate and requires a rate of return of 8% for this project. Should ABC Corporation accept the project? Elaborate your rationale and show your calculation steps.
Company is considering purchasing a breadmaker. The cost of the breadmaker is $200,000 and an additional $10,000 is required for installation and training expenses. The old equipment can be sold for $4000. Annual cash flows are $6,285 It is estimated the breadmaker will operate for 25 years Annual costs are expected to consist of $2500 for maintenance, 8,200 for depreciation, and 4,000 for electricity. The rate of return is 6%. The companies corporate tax rate is 25% and the present value of the tax shield for the breadmaker is $28000 Given all of this information, what would be the NPV of the breadmaker and should the company purchase it?
Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $360,500 and will generate $100,000 per year for 5 years. Calculate the IRR for this piece of equipment. (Click here to see present value and future value tables) fill in the blank 1%
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Milling, Inc. is considering a new milling machine. The machine costs $125,000. They can received a $15,000 trade in allowance for the old milling machine. The new machine can be used to generate $35,500 in annual revenue. Cash operation expenses are estimated to be $14,500 per year. The machine has a useful life of 15 years and annual depreciation expense would be $9,500. The machine would require a $5,100 maintenance in year 7. The machine has an approximate salvage value of $12,300 at the end of its useful life. The company has a 10% minimum rate of return. The net present value of this investment is? $63,112.75 $35,978.80 $55,820.11 $50,049.40
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Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following: Machine A could be purchased for $11,000. It will last 10 years with annual maintenance costs of $400 per year. After 10 years the machine can be sold for $1,155. Machine B could be purchased for $10,000. It also will last 10 years and will require maintenance costs of $1,600 in year three, $2,000 in year six, and $2,400 in year eight. After 10 years, the machine will have no salvage value. Required: Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year. Ignore income tax considerations. Calculate the present value of Machine A & Machine B. Which machine Esquire should purchase
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A firm is considering an investment in a new machine with a price of $15.9 million to replace its existing machine. The current machine has a book value of $5.7 million and a market value of $4.4 million. The new machine is expected to have a 4-year life, and the old machine has four years left in which it can be used. If the firm replaces the old machine with the new machine, it expects to save $6.45 million in operating costs each year over the next four years. Both machines will have no salvage value in four years. If the firm purchases the new machine, it will also need an investment of $280,000 in net working capital. The required return on the investment is 11 percent and the tax rate is 23 percent. The company uses straight-line depreciation. a)- What is the NPV of the decision to purchase the new machine? b) What is the IRR of the decision to purchase the new machine? c) WHat is the NPV of the decison to keep using the old machine? d) What is the IRR of the decison to keep…
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