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Assume that you are thinking about starting your own small business. You have made the following estimates regarding this opportunity: You can rent a location for your business at a cost of $36, 000 per year. The equipment costs incurred to start the business would total $250,000. The equipment would have a 5-year useful life and a salvage value of S 25,000. Your company's estimated sales per year would equal $350,000 and its variable cost of goods sold would be 30% of sales. Other operating costs would include $56, 000 per year in salaries, S4, 000 per year for insurance, $25, 000 per year for utilities, and a 3% sales commission. The payback period for this investment opportunity is closest to:
Multiple Choice 4.08 years, 2.20 years. 3.80 years. 3.08 years.
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- wallace inc is considering spending $100,000 for a new grinding machine. this amount could be invested to yield a 12% return. what is the opportunity cost?arrow_forwardYou are preparing to produce some goods for sale. You will sell them in one year and you will incur costs of $86,000 immediately. If your cost of capital is 7.3%, what is the minimum dollar amount you need to sell the goods for in order for this to be a non-negative NPV? The minimum dollar amount is $. (Round to the nearest dollar)arrow_forwardAssume that a company is considering purchasing a machine for $100,000 that will have a seven-year useful life and no salvage value. The machine will lower operating costs by $18,000 per year. The company also expects this investment to provide qualitative benefits that it is struggling to incorporate into its financial analysis. Assuming the company's required rate of return is 17% and the net present value of the investment before considering the qualitative benefits is $(29,404), the minimum dollar value per year that must be provided by the machine's qualitative benefits to justify the $100,000 investment is closest to: Multiple Choice O O о O $7,787. $8,247. $7,497. $8,067.arrow_forward
- a. Campbell Manufacturing is considering the purchase of a new welding system. The cash benefits will be $480,000 per year. The system costs $2,450,000 and will last 10 years. b. Evee Cardenas is interested in investing in a women's specialty shop. The cost of the investment is $230,000. She estimates that the return from owning her own shop will be $55,000 per year. She estimates that the shop will have a useful life of 6 years. c. Barker Company calculated the NPV of a project and found it to be $63,900. The project's life was estimated to be 8 years. The required rate of return used for the NPV calculation was 10%. The project was expected to produce annual after-tax cash flows of $135,000. Required: 1. Compute the NPV for Campbell Manufacturing, assuming a discount rate of 12%. If required, round all present value calculations to the nearest dollar. Use the minus sign to indicate a negative NPV. Should the company buy the new welding system? Yes 2. Conceptual Connection: Assuming a…arrow_forwardYou are preparing to produce some goods for sale. You will sell them in one year and you will incur costs of $79,000 immediately. If your cost of capital is 7.2%, what is the minimum dollar amount you need to sell the goods for in order for this to be a non-negative NPV? The minimum dollar amount is $ (Round to the nearest dollar) COOarrow_forwardA business is considering purchasing a piece of new equipment for $200,000. The equipment will generate the following revenues: Year 1: $50,000Year 2: $50,000Year 3: $50,000Year 4: $60,000The machine can be sold at the end of the year four for $25,000. Assume a discount of 8%. 2. What is the compounded return(IRR) for this project?arrow_forward
- You are preparing to produce some goods for sale. You will sell them in one year and you will incur costs of $86,000 immediately. If your cost of capital is 6.6%, what is the minimum dollar amount you need to sell the goods for in order for this to be a non-negative NPV?arrow_forwardAssume that you are thinking about starting your own small business. You have made the following estimates regarding this opportunity: • You can rent a location for your business at a cost of $36,000 per year. The equipment costs incurred to start the business would total $250,000. The equipment would have a 5-year useful life and a salvage value of $25,000 Your company's estimated sales per year would equal $350,000 and its variable cost of goods sold would be 30% of sales. • Other operating costs would include $58,000 per year in salaries, $4,000 per year for insurance, $25,000 per year for utilities, and a 3% sales commission The simple rate of return for this investment opportunity is closest to: Multiple Choice 22.0% 19.0% 26.6% 15.7%arrow_forwardYou are considering buying a 10-year-old machine for $280, or a new fuel-efficient machine for$600. The new machine will save you $5 per month on your fuel bill, and you will be able to sellit for $300 in 10 years. The used machine will have no resale value at that time. Assume theinterest rate is 3% per year. According to the information given, which machine will you buy?arrow_forward
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