Urmila ben Problem 10-20A (Algo) Using the payback period and unadjusted rate of return to evaluate alternativeinvestment opportunities LO 10-4Seth Fitch owns a small retail ice cream parlor. He is considering expanding the business and has identified two attractive alternatives.One involves purchasing a machine that would enable Mr. Fitch to offer frozen yogurt to customers. The machine would cost $7,800and has an expected useful life of three years with no salvage value. Additional annual cash revenues and cash operating expensesassociated with selling yogurt are expected to be $6,070 and $880, respectively.Alternatively, Mr. Fitch could purchase for $9.480 the equipment necessary to serve cappuccino. That equipment has an expecteduseful life of four years and no salvage value. Additional annual cash revenues and cash operating expenses associated with sellingcappuccino are expected to be $8,320 and $2,240, respectively.Income before taxes earned by the ice cream parlor is taxed at an effective rate of 20 percent.Requireda. Determine the payback period and unadjusted rate of return (use average investment) for each alternative.Note: Round your answers to 2 decimal places.Payback periodUnadjusted rate of returnAlternative 1years%Alternative 2years%

Payback period is the time period required to recover initial investment in the equipment and this…

Answered: a. Determine the payback period and…

a. Determine the payback period and unadjusted rate of return (use average investment) for each alternative. Note: Round your answers to 2 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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The management of Deitrich Inc., a civil engineering design company, is considering an investment in a high-quality blueprint printer with the following cash flows: Year 1234567890 Investment Cash Inflow $2,000 $3,000 $6,000 QUESTION 6 $28,000 $4,000 $8,000 $9,000 $8,000 $6,000 $5,000 $4,000 $4,000 I Required: 1. Determine the payback period of the investment. 2. Would the payback period be affected if the cash inflow in the last year was several times larger?
Basic Present Value Concepts The Atlantic Medical Clinic can purchase a new computer system that will save $7,000 annually in billing costs. The computer system will last for eight years and have no salvage value. Required: What is the maximum price (i.e., the price that exactly equals the present value of the annual savings in billing costs) that the Atlantic Medical Clinic should be willing to pay for the new computer system if the clinic’s required rate of return is: 1. Sixteen percent? 2. Twenty percent?
Exercise 1 (Simple Rate of Return Method) The management of Ann Gee MicroBrew is considering the purchase of an automated bottling machine for P80,000. The machine would replace an old niece of equipment that costs P33,000 per year to operate. The new machine would cost P10,000 per year to operate. The old machine currently in use could be sold now for a scrap value of P5,000. The new machine would have a useful life of 10 years with no salvage value. Required: Compute the simple rate of return on the new automated bottling machine.
Q4 Cuci Kereta Sdn Bhd is evaluating two alternatives: the purchase of an automatic washing system or a semi-automatic washing system. One person will operate the automatic washing machine. On the other hand, the semi-automatic washing system require two workers to operate the system. Table 4 shows the system information. The company estimate 3,000 cars can be washed per year with expected rate of return of 10% per year Evaluate this option with suitable graph for recommendation to the company whether to purchase an automatic or a semi-automatic washing system. Table 4: System Information Semi-automatic Washing System Automatic Washing System First Cost 110,000 20,000 (RM) Salvage (RM) 25,000 3,000 Life 10 (years) Labour Cost 10 10 (RM per hour per person) Wash Car 12 (units per hour) 4,000 for first year and increase 2,000 every year Maintenance Cost 1,500 (RM per year)
Simple Rate of Return Method The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $120,000. The machine would replace an old piece of equipment that costs $30,000 per year to operate. The new machine would cost $12,000 per year to operate. The old machine currently in use could be sold now for a salvage value of $40,000. 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?
Question 4 of / View Policies Show Attempt History Current Attempt in Progress Your answer is partially correct. You are starting a family pizza parlor and need to buy a motorcycle for delivery orders. You have two models in mind. Model A costs $8,500 and is expected to run for 7 years; Model B is more expensive, with a price of $14,900, and has an expected life of 10 years. The annual maintenance costs are $860 for Model A and $640 for Model B. Assume that the opportunity cost of capital is 11 percent. Calculate equivalent annual costs (EAC) of each models. (Do not round the discount factor. Round intermediate calculations and final answers to 2 decimal places, e.g. 15.25.) EAC of Model A is 2$ 2717.11 EAC of Model B is %24 3185.26 Which one should you buy? You should buy Model A eTextbook and Media Attempts: 1 of 3 used Submit Answer Save for Later
Question 3 of 4 View Policies Show Attempt History Current Attempt in Progress Salvage value Estimated annual cash inflows Estimated annual cash outflows Indigo Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it possible for the company to bid on jobs that it currently is not equipped to do. Estimates for each machine are as follows: Click here to view the factor table. Net present value $ Profitability index Machine A $77,600 8 years 0 $25,000 $4,850 Machine A Machine B 185084.79 $190,000 8 years 0 $40,500 $8,850 Calculate the net present value and profitability index of each machine. Assume a 10% discount rate. (If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.g. 1.25124 and final answers to O decimal places, e.g. 5,275. Round profitability index answers to 3 decimal places,…
Question 1 Assuming that you have beeh appointed finance director of BPX Bhd. The company is considering investing in the production of an electronic device used in automobile. There are two mutually exclusive projects available to achieve the plan. Project I Return in one year (RM) 60,000 60,000 Project II State of economy Probability Good 0.3 58,000 62,000 Moderate 0.5 Poor 0.2 50,000 48,000 Project I or II would require an investment of RM50,000. The company has a current market value of RM800,000. The estimated returns of the market in one year are: Good state 20%, Moderate state 15% and Poor state 10% respectively. Assume that the treasury bill rate as 9%. The research director projects that the company's share price will move in line with the market. Required (in no more than 1,000 words, show all relevant workings) (a) Calculate i market variance ii. systematic risk for Project I iii. systematic risk for Project II iv. covariance between Project I and the market v. covariance…
Question 2 Mad Cat Inc. is debating between two alternative earth moving machines to use for the next 8 years. The first supplier, Double Candle, offers the necessary machinery (CCA rate = 30%) at an upfront cost of $5,450,000. These machines are expected to last 4 years and then be salvaged for approximately $1,400,000 (the CCA pool remains open). All the Double Candle machines would be salvaged and replaced after 4 years. The alternative is to purchase significantly more expensive (but longer lasting) machinery from Elemental which would last the full 8 years but cost $8,650,000 and depreciate at the same CCA rate. Elemental's machines have an expected salvage value of approximately $1,800,000. Mad Cat pays a 25% tax rate and its cost of capital is 11%. a) Which of the two systems incurs the lowest overall cost for Mad Cat? (4 marks) b) For what salvage value on the Elemental machines would you be indifferent between the two options? (2 marks)
QUESTION 2 Determine which of the following two alternatives is the most efficient and which is the most profitable using the Internal Rate of Return (IRR) method: Alter. Purchase Cost $ Annual Savings Life (yrs) (Reduced Pollution fees $lyr) A 1,000,000 $355,000 8 В 3,000,000 $575,000 16 The MARR is 10% per year. Attach File Browse Local Files
View Policies Current Attempt in Progress You are starting a family pizza parlor and need to buy a motorcycle for delivery orders. You have two models in mind. Modet A costs $8,500 and is expected to run for 7 years; Model B is more expensive, with a price of $14,900, and has an expected life of 10 years. The annual maintenance costs are $860 for Model A and $640 for Model B. Assume that the opportunity cost of capital is 11 percent. Calculate equivalent annual costs (EAC) of each models. (Do not round the discount factor. Round intermediate calculations and final answers to 2 decimal places, e.g. 15.25.) EAC of Model A is %24 EAC of ModelB is %24 Which one should you buy? You should buy eTextbook and Media Save for Later Attempts: 0 of 3 used Submit Answer
6 You have narrowed down your choices for a new car to two opuons. One is relatively cheap with a short economic life and the other is more expensive but will last longer until you feel it will need to be replaced. Given the two cash flows below for the two car choices, use a Present Worth Analysis to determine the better choice, economically, and by how much. Use an i % annual interest. IC O&M Overhaul in Year 4 Salvage Life Cheap $22K $4K $10K 3 years Expensive $55K $3.5K $3k $19K 6 years

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