B2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment isexpected to cost $369,600 with a 8-year life and no salvage value. It will be depreciated on a straight-line basis. The company expectsto sell 147,840 units of the equipment's product each year. The expected annual income related to this equipment follows.SalesCostsMaterials, labor, and overhead (except depreciation on new equipment)Depreciation on new equipmentSelling and administrative expensesTotal costs and expensesPretax incomeIncome taxes (30%)Net incomeIf at least an 10% return on this investment must be earned, compute the net present value of this investment. (PV of $1, FV of $1, PVAof $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)Chart Values are Based on:Select Chartn=j=Amount810 %X PV Factor =< Prev6 of 11Present Value$‒‒‒I0$ 231,00081,00046,20023,100150,30080,70024,210$ 56,490Next > Depreciation on new equipmentSelling and administrative expensesTotal costs and expensesPretax incomeIncome taxes (30%)Net incomeIf at least an 10% return on this investment must be earned, compute the net present value of this investment. (PV of $1. FV of $1. PVAof $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)Chart Values are Based on:Select ChartNet present valuen=j=Amount810 %XPV Factor =< Prev=Present Value0$‒‒‒6 of 11mH23,100150,30080,70024,210$ 56,490Next >

Net present value is the difference between the present value of cash flow and initial investment…

Answered: B2B Co. is considering the purchase of…

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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Daily Enterprises is purchasing a $9.6 million machine. It will cost $46,000 to transport and install the machine. The machine has a depreciable life of five years and will have no salvage value. If Daily uses straight-line depreciation, what are the depreciation expenses associated with this machine? The yearly depreciation expenses are $___________ (Round to the nearest dollar.)
Salsa Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price $300,000 $600,000 Accumulated Depreciation 89,300 Remaining useful life 10 years Useful life 10 years Annual operating costs $240,000 $180,600 If the old machine is replaced, it can be sold for $24,000. How much is the sunk cost?
Mitsui Electronics, Limited, is considering buying a labor-saving pierce of equipment and provided the following data: Purchase cost of the equipment $ 484,500 Annual cost savings that will be provided by the equipment $ 85,000 Life of the equipment 12 years Compute the simple rate of return on the equipment. Use straight-line depreciation based on the equipment’s useful life.
Awal Co. has a proposed project that will generate sales of 1419units annually at a selling price of $23 each. The fixed costs are $13060 and the variable costs per unit are $4.40. The project requires $29269 of fixed assets that will be depreciated on a straight-line basis to a zero book value over the 9-year life of the project. The salvage value of the fixed assets is $8,100 and the tax rate is 33 percent. What is the operating cash flow
Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $491,000 cost with an expected four-year life and a $20,000 salvage value Additional annual information for this new product line follows PV of $. EX of St. PVA of Stand EVA of $ (Use appropriate factors) from the tables provided) Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation Machinery 1. Determine income and net cash flow for each year of this machine's life. 2. Compute this machine's payback period, assuming that cash flows occur evenly throughout each year 3. Compute net present value for this machine using a discount rate of 7% Complete this question by entering your answers in the tabs below. Required 1 Required 2 year 4 Required 3 Compute net present value for this machine using a discount rate of 7%. (Do not round intermediate calculations. Negative amounts should be entered with a minus sign.…
A company is considering replacing an old piece of machinery, which cost $597,100 and has $352,000 of accumulated depreciation to date, with a new machine that has a purchase price of $484,900. The old machine could be sold for $64,000. The annual variable production costs associated with the old machine are estimated to be $155,100 per year for eight years. The annual variable production costs for the new machine are estimated to be $99,700 per year for eight years. a. Prepare a differential analysis dated April 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) April 29 Continuewith OldMachine(Alternative 1) ReplaceOldMachine(Alternative 2) DifferentialEffecton Income(Alternative 2) Revenues:…
Pique Corporation plans to purchase a new machine for $300,000. Management estimates that with the machine cash flows from sales will increase by $160,000 each year for the next 5 years. Expenses to generate the additional sales include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $70,000 per year. The firm uses straight-line depreciation with no terminal disposal value for all depreciable assets. The new machine has an expected salvage value of zero at the end of the project. Pique's combined income tax rate is 20%. Management requires a minimum after-tax rate of return of 8% on all investments.a. Calculate the Net Present Value (NPV) for this project.
Benson Enterprises is deciding when to replace its old machine. The machine’s current salvagevalue is $1.2 million. Its current book value is $1 million. If not sold, the old machine will requiremaintenance costs of $420,000 at the end of the year for the next five years. Depreciation on theold machine is $200,000 per year. At the end of five years, it will have a salvage value of $220,000.A replacement machine costs $3.5 million now and requires maintenance costs of $160,000 at theend of each year during its economic life of five years. At the end of five years, the new machinewill have a salvage value of $540,000. It will be fully depreciated using the three-year MACRSschedule. In five years a replacement machine will cost $4,000,000. Pilot will need to purchasethis machine regardless of what choice it makes today. The corporate tax is 35 percent and theappropriate discount rate is 10 percent. The company is assumed to earn sufficient revenues togenerate tax shields from…
B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $240,000 and has a 12-year life and no salvage value. The expected annual income for each year from this equipment follows. Sales of new product $ 150,000 Expenses Materials, labor, and overhead (except depreciation) 80,000 Depreciation—Equipment 20,000 Selling, general, and administrative expenses 15,000 Income $ 35,000 (a) Compute the annual net cash flow.(b) Compute the payback period.(c) Compute the accounting rate of return for this equipment.
Stranger Things Corporation is planning to add a new product to its line. To package this product, the company needs to buy a new machine at a cost of $518,000 cost with an expected four-year life and $15,000 salvage value. Additional annual information for this new product line follows: Sales of new product Cost of Goods Sold (does not include depreciation) Selling, general, and administrative expenses (does not include depreciation) Required: (1) Determine income and net cash flow for each year of this machine's life. $ 1,750,000 1,248,000 (2) Compute this machine's payback period, assuming that cash flows occur evenly throughout each year. 315,000 (3) Compute net present value for this machine using a discount rate of 5%. Use the Present Value Tables below.
A company is considering replacing an old piece of machinery, which cost $168,000 and has $88,000 of accumulated depreciation to date, with a new machine that has a purchase price of $107,900. The old machine could be sold for $90,100. The annual variable production costs associated with the old machine are estimated to be $11,200 per year for 8 years. The annual variable production costs for the new machine are estimated to be $8,000 per year for 8 years. a. Prepare a differential analysis dated April 29 to determine whether to Continue with Old Machine (Alternative 1) or Replace Old Machine (Alternative 2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) April 29 Continuewith OldMachine(Alternative 1) ReplaceOldMachine(Alternative 2) DifferentialEffects(Alternative 2) Revenues: Proceeds from sale…
Rockyford Company must replace some machinery that has zero book value and a current market value of $1,800. One possibility is to invest in new machinery costing $40,000. This new machinery would produce estimated annual pretax cash operating savings of $12,500. Assume the new machine will have a useful life of 4 years and depreciation of $10,000 each year for book and tax purposes. It will have no salvage value at the end of 4 years. The investment in this new machinery would require an additional $3,000 investment of net working capital. (Assume that when the old machine was purchased, the incremental net working capital required at the time was $0.) If Rockyford accepts this investment proposal, the disposal of the old machinery and the investment in the new one will occur on December 31 of this year. The cash flows from the investment are expected to occur over a four-year period. Rockyford is subject to a 40% income tax rate for all ordinary income and capital gains and has a 10%…

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