Average Rate of Return-Cost Savings Maui Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $83,000 with a $7,000 residual value and a five-year life. The equipment will replace one employee who has an average wage of $32,260 per year. In addition, the equipment will have operating and energy costs of $8,060 per year. Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment. If required, round to the

Average Rate of Return-Cost Savings Maui Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $83,000 with a $7,000 residual value and a five-year life. The equipment will replace one employee who has an average wage of $32,260 per year. In addition, the equipment will have operating and energy costs of $8,060 per year. Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment. If required, round to the

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 2E: Average rate of returncost savings Maui Fabricators Inc. is considering an investment in equipment...

See similar textbooks

Similar questions

Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return In Excel, see Appendix C.
Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $420,000 and will generate $95,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further Instructions on internal rate of return in Excel, see Appendix C.
Average rate of returnnew product Hana Inc. is considering an investment in new equipment that will be used to manufacture a smart-phone. The phone is expected to generate additional annual sales of 10,000 units at 300 per unit. The equipment has a cost of 4,500,000, residual value of 500,000, and a 10-year life. The equipment can only be used to manufacture the phone. The cost to manufacture the phone follows: Determine the average rate of return on the equipment.
Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
Flanders Manufacturing is considering purchasing a new machine that will reduce variable costs per part produced by $0.15. The machine will increase fixed costs by $18,250 per year. The information they will use to consider these changes is shown here.
Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?
A grocery store is considering the purchase of a new refrigeration unit with an Initial Investment of $412,000, and the store expects a return of $100,000 in year one, $72000 in years two and three, $65,000 in years four and five, and $38,000 in year six and beyond, what is the payback period?
A restaurant is considering the purchase of new tables and chairs for their dining room with an initial investment cost of $515,000, and the restaurant expects an annual net cash flow of $103,000 per year. What is the payback period?
Average rate of return - cost savings Maui Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $125,000 with a $15,000 residual value and an eight year life. The equipment will replace one employee who has an average wage of $28,000 per year. In addition, the equipment will have operating and energy costs of $5,150 per year. Determine the average rate of return on the equipment, giving effect to straight line depreciation on the investment.
Average Rate of Return-Cost Savings Midwest Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $100,000 with a $9,000 residual value and a ten-year life. The equipment will replace one employee who has an average wage of $16,645 per year. In addition, the equipment will have operating and energy costs of $4,820 per year. Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment. If required, round to the nearest whole percent. %