Clean Duds Laundromat has an industrial water softener that enhances the water quality used in its washing machines. The watersoftener is approaching the end of its useful life and must be either overhauled or replaced. Details of the two alternatives are showbelow.If the company overhauls its current water softener, then it will be usable for eight more years. If, instead, a new water softener ispurchased, it will be used for eight years, after which it will be replaced. The new water softener will be considerably more energyefficient, resulting in a substantial reduction in annual operating costs, as shown below:Purchase cost newRemaining book valueOverhaul needed nowAnnual cash operating costsSalvage value nowSalvage value eight years from nowPurchase the new softenerUpgrade and Keep the old softenerCurrentWaterSoftener$24,000$20,500$12,000$14,000PV of NetCash Flows$$$ 5,200$ 2,600Clean Duds computes depreciation on a straight-line basis. All equipment purchases are evaluated using a 12% discount rate.Required:(Ignore income taxes.)(72,495)(80,496)NewWaterSoftener$34,0001-a. Determine the present value of net cash flows using the total-cost approach. (Hint. Use Microsoft Excel to calculate the discountfactor(s).) (Enter any cash outflows with a minus sign. Do not round intermediate calculations and round final answers to thenearest dollar amount.)$ 9,300$ 6,200 Required:(Ignore income taxes.)1-a. Determine the present value of net cash flows using the total-cost approach. (Hint. Use Microsoft Excel to calculate the discountfactor(s).) (Enter any cash outflows with a minus sign. Do not round intermediate calculations and round final answers to thenearest dollar amount.)Purchase the new softenerUpgrade and Keep the old softener1-b. Should Clean Duds Laundromat upgrade the old water softener or purchase the new one?Purchase the new softenerUpgrade the old softenerPV of NetCash Flows$(72,495)$ (80,496)2. Using the incremental-cost approach, determine the net present value in favor of (or against) purchasing the new water softener?(Hint. Use Microsoft Excel to calculate the discount factor(s).) (Do not round intermediate calculations and round final answer to thenearest dollar amount.)Net present value41,602

It is the process of making decisions that involve the management of costs in order to achieve…

Clean Duds Laundromat has an industrial water softener that enhances the water quality used in its washing machines. The water softener is approaching the end of its useful life and must be either overhauled or replaced. Details of the two alternatives are show below. If the company overhauls its current water softener, then it will be usable for eight more years. If, instead, a new water softener is purchased, it will be used for eight years, after which it will be replaced. The new water softener will be considerably more energy efficient, resulting in a substantial reduction in annual operating costs, as shown below: Purchase cost new Remaining book value Overhaul needed now Annual cash operating costs Salvage value now Salvage value eight years from now Current Water Softener $24,000 $20,500 $12,000 $14,000 $ 5,200 $ 2,600 New Water Softener $34,000 $9,300 $ 6,200

Clean Duds Laundromat has an industrial water softener that enhances the water quality used in its washing machines. The water softener is approaching the end of its useful life and must be either overhauled or replaced. Details of the two alternatives are show below. If the company overhauls its current water softener, then it will be usable for eight more years. If, instead, a new water softener is purchased, it will be used for eight years, after which it will be replaced. The new water softener will be considerably more energy efficient, resulting in a substantial reduction in annual operating costs, as shown below: Purchase cost new Remaining book value Overhaul needed now Annual cash operating costs Salvage value now Salvage value eight years from now Current Water Softener $24,000 $20,500 $12,000 $14,000 $ 5,200 $ 2,600 New Water Softener $34,000 $9,300 $ 6,200

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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Clean Duds Laundromat has an industrial water softener that enhances the water quality used in its washing machines. The water softener is approaching the end of its useful life and must be either overhauled or replaced. Details of the two alternatives are shown below. If the company overhauls its current water softener, then it will be usable for eight more years. If, instead, a new water softener is purchased, it will be used for eight years, after which it will be replaced. The new water softener will be considerably more energy efficient, resulting in a substantial reduction in annual operating costs, as shown below: Purchase cost new Remaining book value Overhaul needed now Annual cash operating costs Salvage value now Salvage value eight years from now New Water Softener Current Water Softener $17,000 $13,500 $ 8,500 $10,500 $ 3,800 $ 23,500 $ 7,200 $ 1,900 $ 4,800 Clean Duds computes depreciation on a straight-line basis. All equipment purchases are evaluated using a 14%…
Georgia Ceramic Company has an automatic glaze sprayer that has been used for the past 10 years. The sprayer can be used for another 10 years and will have a zero salvage value at that time. The annual operating and maintenance costs for the sprayer amount to $15,000 per year. Due to an increase in business, a new sprayer must be purchased, either in addition to or as a replacement for the old sprayer. Option 1: H the old sprayer is retained, a new, smaller capacity sprayer willbe purchased at a cost of $48,000; this new sprayer will have a $5.000 salvage value in I 0 years and annual operating and maintenance costs of $12.000. The old sprayer has a current market value of $6.000.Option 2: If the old sprayer is sold, a new sprayer of larger capacity will bepurchased for $84,000. This sprayer will have a $9,000 salvage value in 10years and annual operating and maintenance costs of $24,000.Which option should be selected at MARR = 12%?
Georgia Ceramic Company has an automatic glaze sprayer that has been used for the past 10 years. The sprayer can be used for another 10 years and will have a zero salvage value at that time. The annual operating and maintenance costs for the sprayer amount to $15,000 per year. Due to an increase in business, a new sprayer must be purchased, either in addition to or as a replacement for the old sprayer.• Option 1: If the old sprayer is retained, a new, smaller capacity sprayer will be purchased at a cost of $48,000; this new sprayer will have a $5.000 salvage value in 10 years and annual operating and maintenance costs of $12,000. The old sprayer has a current market value of $6.000.• Option 2: If the old sprayer is sold, a new sprayer of larger capacity will be purchased for $84,000. This sprayer will have a $9,000 salvage value in 10 years and annual operating and maintenance costs of $24,000.Which option should be selected at MARR = 12%?
An ice plant bought a freon compressor. The estimated life of the compressor is 15 years. An investigation reveals that the new compressors are very much improved during that time. However, this compressor is still in good condition. It can be sold for an estimated price of $1,200 or it can be kept and operated for 2 more years. A new compressor of the same capacity may be purchased to replace it at a cost completely installed for $18,000. If the old machine operates at $1,200 per year and the new machine at $600 per year, and the salvage value is 10% of first cost, what is the rate of return on additional investment and should it be replaced?
An oil refinery finds that it is necessary to treat the waste liquids from a new process before discharging them into a stream. The treatment will cost $30,000 the first year, but process improvements will allow the costs alternative, an outside company will process the wastes for the fixed price of $15,000/year throughout the 15 year period, payable at the beginning of each year. Either way, there is no need to treat the wastes after 15 years. Use the annual worth method to determine how the wastes should be processed. The company's MARR is 12%. decline by $3,000 each year. As an Click the icon to view the interest and annuity table for discrete compounding when the MARR is 12% per year. The AW of the in-house treatment is S (Round to the nearest dollar) The AW of the outside treatment is S (Round to the nearest dollar.) The processing is the most economical alternative
The Georgia Ceramic Company has anautomatic glaze sprayer that has been used for thepast 10 years. The sprayer can be used for another10 years and will have a zero salvage value at thattime. The annual operating and maintenance costsfor the sprayer amount to $15,000 per year. Due toan increase in business, a new sprayer must be purchased. Georgia Ceramic is faced with two options.• Option 1: If the old sprayer is retained, a newsmaller capacity sprayer will be purchased at a costof $48,000, and it will have a $5,000 salvage valuein 10 years. This new sprayer will have annualoperating and maintenance costs of $12,000. Theold sprayer has a current market value of $6,000.• Option 2: If the old sprayer is sold, a newsprayer of larger capacity will be purchased for$84,000. This sprayer will have a $9,000 salvagevalue in 10 years and will have annual operatingand maintenance costs of $24,000.Which option should be selected at MARR = 15%?
Cori's Dog House is considering the installation of a new computerized pressure cooker for hot dogs. The cooker will increase sales by $18,600 per year and will have variable costs of $1,700 per year. Fixed costs are $950. The system will cost $50,400 to purchase and install. This system is expected to have a 5-year life and will be depreciated to zero using straight-line depreciation and have no salvage value. The tax rate is 21 percent. Please provide a pro forma financial statement to Cash Flows from Operations for the life of the pressure cooker. PLEASE ANSWER THIS QUESTION IN EXCEL FORMULA, NOT ALGEBRAICALLY!
A packaging factory is considering the replacement of some equipment. The new plan is to install equipment to produce a new can that uses less energy and less metal than the old one. Current equipment was installed 5 years ago for $100 million and can be sold for $35 million. Due to obsolescence the depreciation of this equipment results in an annual depreciation of $4 million for the next years. If you keep this equipment for one more year your operating and maintenance costs will be $65 million increasing by $3 million/year each year thereafter. The new equipment will cost $130 million, with an economic life of 8 years and a salvage value of $10 million. Its operating and maintenance costs will be $49 million. For a TMAR = 15% p.a. what new equipment should be installed? Make a recommendation about it. (Answer: The solution would be to use the current equipment for another two years and then exchange it for new equipment.
A certain factory building has an old lightingsystem. Lighting the building currently costs, on average, $20,000 a year. A lighting consultant tells thefactory supervisor that the lighting bill can be reducedto $8,000 a year if $50,000 is invested in new lightingin the building. If the new lighting system is installed,an incremental maintenance cost of $3,000 per yearmust be taken into account. The new lighting systemhas zero salvage value at the end of its life. If the oldlighting system also has zero salvage value, and thenew lighting system is estimated to have a life of 20years, what is the net annual benefit for this investment in new lighting? Take the MARR to be 12%.Assume the old lighting system will last 20 years.6.43 Your company needs a machine for the nextseven years, and you have two choices (assume anannual interest rate of 15%).• Machine A costs $100,000 and has an annual operating cost of $47,000. Machine A has a useful lifeof seven years and a salvage value of…
Newmarge Products Inc. is evaluating a new design for one of its manufacturing processes. The new design will eliminate the production of a toxic solid residue. The initial cost of the system is estimated at 860,000 and includes computerized equipment, software, and installation. There is no expected salvage value. The new system has a useful life of 8 years and is projected to produce cash operating savings of 225,000 per year over the old system (reducing labor costs and costs of processing and disposing of toxic waste). The cost of capital is 16%. Required: 1. Compute the NPV of the new system. 2. One year after implementation, the internal audit staff noted the following about the new system: (1) the cost of acquiring the system was 60,000 more than expected due to higher installation costs, and (2) the annual cost savings were 20,000 less than expected because more labor cost was needed than anticipated. Using the changes in expected costs and benefits, compute the NPV as if this information had been available one year ago. Did the company make the right decision? 3. CONCEPTUAL CONNECTION Upon reporting the results mentioned in the postaudit, the marketing manager responded in a memo to the internal audit department indicating that cash inflows also had increased by a net of 60,000 per year because of increased purchases by environmentally sensitive customers. Describe the effect that this has on the analysis in Requirement 2. 4. CONCEPTUAL CONNECTION Why is a postaudit beneficial to a firm?
"That old equipment for producing oil drums is worn out," said Jillian Rafuse, president of Hondrich Company. "We need to make a decision quickly." The company is trying to decide whether it should rent new equipment and continue to make its oil drums internally or whether it should discontinue production and purchase them from an outside supplier. The alternatives follow: Alternative 1: Rent new equipment for producing the oil drums for $96,000 per year. Alternative 2: Purchase oil drums from an outside supplier for $17.15 each. Hondrich Company's costs per unit of producing the oil drums internally (with the old equipment) are given below. These costs are based on a current activity level of 30,000 units per year: Direct materials $ 5.00 Direct labour 9.00 Variable overhead 3.20 Fixed overhead ($1.60 supervision, $1.80 depreciation, and $4.00 general company overhead) Total cost per unit 7.40 $24.60 The new equipment would be more efficient and, according to the manufacturer, would…
Bilboa Freightlines, S.A., of Panama, has a small truck that it uses for intracity deliveries. The truck is worn out and must be either overhauled or replaced with a new truck. The company has assembled the following information: Purchase cost new Remaining book value Overhaul needed now Annual cash operating costs Salvage value-now Salvage value-five years from now If the company keeps and overhauls its present delivery truck, then the truck will be usable for five more years. If a new truck is purchased, it will be used for five years, after which it will be traded in on another truck. The new truck would be diesel-operated, resulting in a substantial reduction in annual operating costs, as shown above. The company computes depreciation on a straight-line basis. All investment projects are evaluated using a 7% discount rate. Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables. Present Truck $ 31,000 $ 24,000 $ 23,000 $…