None Sandhill, a large manufacturing company, currently usesa large printing press in its operations and isconsidering two replacements: the PDX341 and PDW581. The PDX costs $503,000 and has annualmaintenance costs of $10, 300 for the first 5 years and $15,300 for the next 10 years. After 15 years, the PDXwill be scrapped (salvage value is zero). In contrast, thePDW can be acquired for $125, 750 and requiresmaintenance of $30, 600 a year for its 10-year life. Thesalvage value of the PDW is expected to be in 10 years.Assuming that Sandhill must replace its current printingpress (it has stopped functioning), has a(n) 11 - percentcost of capital, and all cash flows are after tax, whichreplacement press is the most appropriate? (Roundanswers to 2 decimal places, e. g. 125.25.)Sexdatathethrive,ewe starSRPX TATO 30forftened 10 verre Ateryill-lange santincional - code wandi$125,750 anasjeli svit seda kohe acintoChain Reaction ApproachприваAFV Aparach10would use

The net present value is used to determine if an investment will yield profit over time. It examines…

Answered: Assuming that Sandhill must replace its…

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 10P

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Flounder, a large manufacturing company, currently uses a large printing press in its operations and is considering two replacements: the PDX341 and PDW581. The PDX costs $504,000 and has annual maintenance costs of $10,400 for the first 5 years and $15,400 for the next 10 years. After 15 years, the PDX will be scrapped (salvage value is zero). In contrast, the PDW can be acquired for $126,000 and requires maintenance of $30,800 a year for its 10-year life. The salvage value of the PDW is expected to be zero in 10 years. Assuming that Flounder must replace its current printing press (it has stopped functioning), has a(n) 9-percent cost of capital, and all cash flows are after tax, which replacement press is the most appropriate? (Round answers to 2 decimal places, e.g. 125.25.) Chain Replication Approach: NPV of PDX341 NPV of PDW581 We would prefer $ $ Equivalent Annual NPV Approach: Equivalent Annual NPV of PDX341 We would prefer Equivalent Annual NPV of PDW581 $ $
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DeCablo, Inc. owns a machine costing P105,000. This has an estimated useful life of 6 years with a scrap value of P15,000 depreciated using straight line method. After using this for two (2) years the operating efficiency of the machine is decreasing. A repair cost amounting to P30,000 is needed to restore the machine to its normal capacity. The machine can be sold now to a ready buyer for P60,000. The management is contemplating to purchase a new machine now at a cost of P150,000 and can be depreciated over four (4) years with no salvage value using sum of year’s digit (SYD) method. After its economic life of 4 years its market value is P50,000. The company will incurs a shipping and installation of cost of P40,000 and an increase in working capital of P25,000. With this new machine, revenues is expected to increase by P125,000 and cash expenses due to this replacement will also increase by P60,000. Cost of capital is estimated to be 15% and corporate tax of 25% Required: Evaluate…
DeCablo, Inc. owns a machine costing P105,000. This has an estimated useful life of 6 years with a scrap value of P15,000 depreciated using straight-line method. After using this for two (2) years the operating efficiency of the machine is decreasing. A repair cost amounting to P30,000 is needed to restore the machine to its normal capacity. The machine can be sold now to a ready buyer for P60,000. The management is contemplating to purchase a new machine now at a cost of P150,000 and can be depreciated over four (4) years with no salvage value using sum of year’s digit (SYD) method. After its economic life of 4 years its market value is P50,000. The company will incurs a shipping and installation of cost of P40,000 and an increase in working capital of P25,000. With this new machine, revenues is expected to increase by P125,000 and cash expenses due to this replacement will also increase by P60,000. Cost of capital is estimated to be 15% and corporate tax of 25% Required: Necessary…
Rust Industrial Systems Company is trying to decide between two different conveyor belt systems. System A costs $295,000, has a four-year life, and requires $77,000 in pretax annual operating costs. System B costs $355,000, has a six-year life, and requires $83,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Whichever project is chosen, it will not be replaced when it wears out. The tax rate is 21 percent, and the discount rate is 8 percent. Which project should the firm choose?

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Assuming that Sandhill must replace its current printing press (it has stopped functioning), has a(n) 11 - percent cost of capital, and all cash flows are after tax, which replacement press is the most appropriate? (Round answers to 2 decimal places, e.g. 125.25.)