Alliance Manufacturing Company is considering the purchase of a new automated drill press to replace an older one. The machine now in operation has a book value of zero and a salvage value of zero. However, it is in good working condition with an expected life of 10 additional years. The new drill press is more efficient than the existing one and, if installed, will provide an estimated cost savings (in labor, materials, and maintenance) of $6,000 per year. The new machine costs $25,000 delivered and installed. It has an estimated useful life of 10 years and a salvage value of $1,000 at the end of this period. The firm’s cost of capital is 14 percent, and its marginal income tax rate is 40 percent. The firm uses the straight-line depreciation method. Complete the following table to compute the net present value (NPV) of the investment. (Hint: Remember that, in Year 10, Alliances also receives the salvage value of the machine.) Year Cash Flow PV Interest Factor at 14% Present Value (PV) ($) ($) 0   1.00000   1   0.87719      2   0.76947      3   0.67497      4   0.59208      5   0.51937      6   0.45559      7   0.39964      8   0.35056      9   0.30751      10   0.26974          Net Present Value        Should Alliance replace its existing drill press?

Lukow Products is investigating the purchase of a piece of automated equipment that will save $400,000 each year in direct labor and inventory carrying costs. This equipment costs $2,500,000 and is expected to have a 15-year useful life with no salvage value. The company's required rate of return is 20% on all equipment purchases. Management anticipates that this equipment will provide intangible benefits such as greater flexibility and higher-quality output that will result in additional future cash inflows. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table. Required: 1. What is the net present value of the piece of equipment before considering its intangible benefits? (Enter negative amounts with a minus sign.) 2. What minimum dollar value per year must be provided by the equipment's intangible benefits to justify the $2,500,000 investment? (Do not round intermediate calculations. Round your answers to the nearest whole…

Lukow Products is investigating the purchase of a piece of automated equipment that will save $140,000 each year in direct labor and Inventory carrying costs. This equipment costs $930,000 and is expected to have a 8-year useful life with no salvage value. The company's required rate of return is 12% on all equipment purchases. Management anticipates that this equipment will provide intangible benefits such as greater flexibility and higher-quality output that will result in additional future cash inflows. Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using table. Required: 1. What is the net present value of the piece of equipment before considering its intangible benefits? Note: Enter negative amount with a minus sign. Round your final answer to the nearest whole dollar amount. 2. What minimum dollar value per year must be provided by the equipment's intangible benefits to justify the $930,000 investment? Note: Do not round…

The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $71,000. The machine would replace an old piece of equipment that costs $18,000 per year to operate. The new machine would cost $8,000 per year to operate. The old machine currently in use is fully depreciated and could be sold now for a salvage value of $26,000. 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 investment 4.…

Lukow Products is investigating the purchase of a piece of automated equipment that will save $150,000 each year in direct labor and Inventory carrying costs. This equipment costs $940,000 and is expected to have a 7-year useful life with no salvage value. The company's required rate of return is 14% on all equipment purchases. Management anticipates that this equipment will provide intangible benefits such as greater flexibility and higher-quality output that will result in additional future cash inflows. Click here to view Exhibit 148:1 and Exhibit 148-2. to determine the appropriate discount factor(s) using table. Required: 1. What is the net present value of the piece of equipment before considering its intangible benefits? (Enter negative amount with a minus sign. Round your final answer to the nearest whole dollar amount.) 2. What minimum dollar value per year must be provided by the equipment's intangible benefits to justify the $940,000 investment? (Do not round intermediate…

ABC Manufacturing Company is planning to reduce its labor costs by automating a critical task that is currently performed manually. The automation requires the installation of a new machine. The cost to purchase and install a new machine is 15,000. The installation of machine can reduce annual labor cost by 4,200. The life of the machine is 15 years. The salvage value of the machine after fifteen years will be zero. The required rate of return of Smart Manufacturing Company is 25%. Should Smart Manufacturing Company purchase the machine?

Choose the correct answer for the following question: Your company is analyzing two machines to determine which one it should purchase. Whichever machine is purchased will be replaced at the end of its useful life. The company requires a 10 percent rate of return and uses straight-line depreciation to a zero book value over the life of the machine. Machine A has a cost of $300,000, annual operating costs of $42,000, and a 5-year life. Machine B costs $265,000, has annual operating costs of $50,000, and a 4-year life. The company currently pays no taxes. Which machine should be purchased and why? (Hint: consider the equivalent annual cost-EAC of the two machines) A. Machine A; because it will save the company about $8,783 a year B. Machine A; because it will save the company about $14,670 a year C. Machine B; because it will save the company about $11,482 a year D. Machine B; because it will save the company about $9,916 a year E. Machine A; because it will save the company about…

Lukow Products is investigating the purchase of a piece of automated equipment that will save $400,000 each year in direct labor and inventory carrying costs. This equipment costs $2,500,000 and is expected to have a 15-year useful life with no salvage value. The company’s required rate of return is 20% on all equipment purchases. Management anticipates that this equipment will provide intangible benefits such as greater flexibility and higher-quality output that will result in additional future cash inflows.   Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using table.   Required: 1. What is the net present value of the piece of equipment beforeconsidering its intangible benefits? (Enter negative amounts with a minus sign.) 2. What minimum dollar value per year must be provided by the equipment’s intangible benefits to justify the $2,500,000 investment? (Do not round intermediate calculations. Round your answers to the nearest whole…

Masters Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $892,800 is estimated to result in $297,600 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Table), and it will have a salvage value at the end of the project of $130,200. The press also requires an initial investment in spare parts inventory of $37,200, along with an additional $5,580 in inventory for each succeeding year of the project.    If the shop's tax rate is 22 percent and its discount rate is 19 percent, what is the NPV for this project?

Starling Co. is considering disposing of a machine with a book value of $22,200 and estimated remaining life of five years. The old machine can be sold for $5,800. A new high-speed machine can be purchased at a cost of $72,200. It will have a useful life of five years and no residual value. It is estimated that the annual variable manufacturing costs will be reduced from $23,400 to $19,900 if the new machine is purchased. The differential effect on income for the new machine for the entire five years is a(n)