Required informationA land development company is considering the purchase of earth-moving equipment. This equipment will have anestimated first cost of $163,000, a salvage value of $55,000, a life of 10 years, a maintenance cost of $32,000 per year,and an operating cost of $220 per day. Alternatively, the company can rent the necessary equipment for $1010 per dayand hire a driver at $180 per day.When approached to rent for the breakeven number of days, the equipment owner indicated that the minimum rental is for 100 daysper year; however, he might consider a lower daily rental cost. What is the daily rental cost to justify renting over purchasing? If theequipment was purchased, assume it would be used for the breakeven number of days. Determine the required rental cost per day.The daily rental cost to justify renting over purchasing is determined to be $

It is the annual cost of purchasing, operating and maintaining the asset throughout the life of the…

A land development company is considering the purchase of earth-moving equipment. This equipment will have an estimated first cost of $163,000, a salvage value of $55,000, a life of 10 years, a maintenance cost of $32,000 per year, and an operating cost of $220 per day. Alternatively, the company can rent the necessary equipment for $1010 per day and hire a driver at $180 per day.

A land development company is considering the purchase of earth-moving equipment. This equipment will have an estimated first cost of $163,000, a salvage value of $55,000, a life of 10 years, a maintenance cost of $32,000 per year, and an operating cost of $220 per day. Alternatively, the company can rent the necessary equipment for $1010 per day and hire a driver at $180 per day.

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter12: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 10P: Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6...

See similar textbooks

Similar questions

Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.
The Ham and Egg Restaurant is considering an investment in a new oven that has a cost of $60,000, with annual net cash flows of $9,950 for 8 years. The required rate of return is 6%. Compute the net present value of this investment to determine whether or not you would recommend that Ham and Egg invest in this oven.
Ballard MicroBrew is considering the purchase of an automated bottling machine for $55,000. The machine would replace an old piece of equipment that costs $14,000 per year to operate. The new machine would cost $6,000 per year to operate. The old machine currently in use is fully depreciated and could be sold now for a salvage value of $20,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the initial investment used for calculating the machine's simple rate of return? 4. What is the simple rate of return on the new bottling machine? Note: Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%. 1. Depreciation expense 2. Incremental net operating income 3. Initial investment 4. Simple rate of return %
A land development company is considering the purchase of earth-moving equipment. The equipment will have a first cost of $190,000 and a salvage value of $70000 when the company sells it in 10 years. A service contract for maintenance on the equipment will cost $40000 per year. The operating cost is expected to be $260 per day. Alternatively, the company can rent the necessary equipment for $1100 per day and hire a driver at $180 per day. If the company's MARR is 10% per year, how many days per year must the company need the equipment in order to justify its purchase? Alternatively
Company A is considering two alternatives. Machine A has a first cost of $15,000. The life is 6 years and it has an annual maintenance and operating cost of $1,500. Machine B has a first cost of $18,000, a life of 8 years and a salvage value of $1,500. The annual operating cost is $1,000. Which machine should be used to justify the purchase of such machine if money is worth 7% and calculate the difference between the equivalent annual worths.
The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $69,000. The machine would replace an old piece of equipment that costs $17,000 per year to operate. The new machine would cost $7,000 per year to operate. The old machine currently in use could be sold now for a salvage value of $23,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.) 1. Depreciation expense 2. Incremental net operating income 3 Initial…
A new production system for a factory is to be purchased and installed for $135331. This system will save approximately 300,000 kWh of electric power each year for a 6-year period. Assume the cost of electricity is $0.10 per kWh, and factory MARR is 15% per year, and the salvage value of the system will be $8662 at year 6. Using the PW method to analyzes if this investment is economically justified A- calculate the PW of the above investment and insert the result below.
HNH Corporation is evaluating a new project with an expected life of 4 years. The project requires an investment in a new plant. HNH can either borrow the money to buy the plant or lease the plant from its manufacturer. The details of each alternative are shown as follows: Purchase: The purchase price of the plant is $800,000 and is expected to have a salvage value of $50,000 after 4 years. The plant qualifies for 25% reducing balance depreciation if owned. Lease: The lease involves four annual payments in arears of $150,000 payable at the end of each year, and a residual payment of $30,000 payable at the end of the lease term, i.e., at the end of year 4. The company tax rate is 30%. The borrowing rate is 8% per annum. Calculate the NPV of leasing and advise the company as to whether it should purchase or lease the plant.
You are trying to determine the initial investment to replace an old Equipment with a new. The proposed equipment’s purchase price is 65,000, and an additional 15,000 will be necessary to install it. It will be depreciated under Modified Accelerated Cost Recovery System for Depreciation (MACRS) using a 3-year recovery period. This equipment has a salvage value of 23,000. The equipment requires an initial increase in net working capital of 20,000. While operation, the equipment will generate 40,000 in revenue and will cost 5,000 to operate in the first year. Inflation is 2.5%. revenue, operating cost, and required working capital will increase by the rate of inflation for year 2 and 3. If The firm pays taxes at a rate of 40% and the firm’s weighted Average cost of capital (WACC) is 12%. Should you invest in the project?
Trailer Treasures Inc. is considering two projects and must do one of them. Project A requires an investment of $35,000. Estimated annual receipts for 5 years are $14,000; estimated annual costs are $4,500. Alternatively, Project B requires an investment of $70,000 has annual receipts for 5 years of $20,000, and has annual costs of $4,500. Assume both proejcts have $10,000 salvage value and that MARR IS 15%/year. 1. What is the annual worth of Project A? 2. What is the annual worth of Project B? 3. Which project should be recommended? Why? Please show work through excel
A new production system for a factory is to be purchased and installed for $135331 . This system will save approximately 300,000kWh of electric power each year for a 6-year period. Assume the cost of electricity is $0.10 per kWh , and factory MARR is 15% per year, and the salvage value of the system will be $8662 at year 6 . Using the PW method to analyzes if this investment is economically justified A- calculate the PW of the above investment and insert the result below. _______________________