company is being offered a special coating for the gasoline underground tank in installing in its service stations which will increase the life of the tank from the usual 10 years to 15 years. The cost of the special coating will increase the cost of the P 40,000 – tank to P 58,000. Cost of installation for either of the tanks is P 24,000. If the salvage value for both is zero, and the interest rate is 26%, would you recommend the use of the special co

company is being offered a special coating for the gasoline underground tank in installing in its service stations which will increase the life of the tank from the usual 10 years to 15 years. The cost of the special coating will increase the cost of the P 40,000 – tank to P 58,000. Cost of installation for either of the tanks is P 24,000. If the salvage value for both is zero, and the interest rate is 26%, would you recommend the use of the special co

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter12: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 10P: Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6...

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An oil company is being offered a special coating for the gasoline underground tank installation in its service stations which will increase the life of the tank from the usual 10 years to 15 years. The cost of the special coating will increase the cost of the 40,000-tank to 58,000. Cost of installation for either of the tanks is P24,000. If the salvage value for both is zero, and interest rate is 26%, would you recommend the use of the special coating? -
Company A is considering two alternatives. Machine A has a first cost of $15,000. The life is 6 years and it has an annual maintenance and operating cost of $1,500. Machine B has a first cost of $18,000, a life of 8 years and a salvage value of $1,500. The annual operating cost is $1,000. Which machine should be used to justify the purchase of such machine if money is worth 7% and calculate the difference between the equivalent annual worths.
Commercial Hydronics is considering replacing one of its larger control devices. A new unit sells for $32,000 (delivered). An additional $4,000 will be needed to install the device. The new device has an estimated 18-year service life. The estimated salvage value at the end of 18 years will be $2,000. The new control device will be depreciated as a 7-year MACRS asset. The existing control device (original cost = $15,000) has been in use for 9 years, and it has been fully depreciated (that is, its book value equals zero). Its scrap value is estimated to be $2,500. The existing device could be used indefinitely, assuming the firm is willing to pay for its very high maintenance costs. The firm's marginal tax rate is 40 percent. The new control device requires lower maintenance costs and frees up personnel who normally would have to monitor the system. Estimated annual cash savings from the new device will be $5,000. The firm's cost of capital is 10 percent. What is the NPV?
Aerotron Electronics is considering purchasing a water filtration system to assist in circuit board manufacturing. The system costs $40,000. It has an expected life of 7 years at which time its salvage value will be $7,500. Operating and maintenance expenses are estimated to be $2,000 per year. If the filtration system is not purchased, Aerotron Electronics will have to pay Bay City $12,000 per year for water purification. If the system is purchased, no water purification from Bay City will be needed. Aerotron Electronics must borrow half of the purchase price, but they cannot start repaying the loan for 2 years. The bank has agreed to three equal annual payments, with the first payment due at the end of year 2. The loan interest rate is 8% compounded annually. Aerotron Electronics’ MARR is 10% compounded annually. a. What is the present worth of this investment? b. What is the decision rule for judging the attractiveness of investmentsbased on present worth? c. Should Aerotron…
Two stamping machines are under consideration for purchase by a metal recycling company. The manual model will cost P1,250,000 to buy with an eight-year life and a P250,000 salvage value. Its annual operating costs will be P800,000. A computer-controlled model will cost P4,750,000 to buy and it will have a twelve-year life if upgraded at the end of year six for 750,000. Its terminal salvage value will be P1,150,000, with annual operating costs of P375,500 for labor and P125,000 for maintenance. The company's minimum attractive rate of return is 18%. Compute the Future worth Worth. Compare the results. Don't use excel
Two stamping machines are under consideration for purchase by a metal recycling company. The manual model will cost P1,250,000 to buy with an eight-year life and a P250,000 salvage value. Its annual operating costs will be P800,000. A computer-controlled model will cost P4,750,000 to buy and it will have a twelve-year life if upgraded at the end of year six for 750,000. Its terminal salvage value will be P1,150,000, with annual operating costs of P375,500 for labor and P125,000 for maintenance. The company's minimum attractive rate of return is 18%.Show the Cash Flow Diagram?
Commercial Hydronics is considering replacing one of its larger control devices. A new unit sells for $28,000 (delivered). An additional $1,000 will be needed to install the device. The new device has an estimated 17-year service life. The estimated salvage value at the end of 17 years will be $1,000. The new control device will be depreciated as a 7-year MACRS asset. The existing control device (original cost = $20,000) has been in use for 10 years, and it has been fully depreciated (that is, its book value equals zero). Its scrap value is estimated to be $1,500. The existing device could be used indefinitely, assuming the firm is willing to pay for its very high maintenance costs. The firm's marginal tax rate is 40 percent. The new control device requires lower maintenance costs and frees up personnel who normally would have to monitor the system. Estimated annual cash savings from the new device will be $5,000. The firm's cost of capital is 14 percent.Evaluate the relative merits of…
Two stamping machines are under consideration for purchase by a metal recycling company. The manual model will cost P1,250,000 to buy with an eight-year life and a P250,000 salvage value. Its annual operating costs will be P800,000. A computer-controlled model will cost P4,750,000 to buy and it will have a twelve-year life if upgraded at the end of year six for 750,000. Its terminal salvage value will be P1,150,000, with annual operating costs of P375,500 for labor and P125,000 for maintenance. The company's minimum attractive rate of return is 18%. Compute the Present Worth. Compare the results. Don't use excel
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,000,000, and it would cost another $20,000 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $576,000. The machine would require an increase in net working capital (inventory) of $15,500. The sprayer would not change revenues, but it is expected to save the firm $424,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 35%. Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. What is the Year-0 net cash flow? $ If the project's cost of capital is 11 %, what is the NPV of the project? $
Commercial Hydronics is considering replacing one of its larger control devices. A new unit sells for $29,000 (delivered). An additional $3,000 will be needed to install the device. The new device has an estimated 20-‐year service life. The estimated salvage value at the end of 20 years will be $2,000. The new control device will be depreciated as a 7-‐year MACRS asset. The existing control device (original cost = $15,000) has been in use for 12 years, and it has been fully depreciated (that is, its book value equals zero). Its scrap value is estimated to be $1,000. The existing device could be used indefinitely, assuming the firm is willing to pay for its very high maintenance costs. The firm’s marginal tax rate is 40 percent. The newcontrol device requires lower maintenance costs and frees up personnel who normally would have to monitor the system. Estimated annual cash savings from the new device will be $9,000. The firm’scost of capital is 12 percent. Evaluate the relative merits…
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,070,000, and it would cost another $21,500 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $696,000. The machine would require an increase in net working capital (inventory) of $15,000. The sprayer would not change revenues, but it is expected to save the firm $405,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 30%. a. What is the Year 0 net cash flow? b. What are the net operating cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar. Year 1 Year 2 Year 3 c. What is the additional Year 3 cash flow (i.e, the after-tax salvage and the return of working capital)? Do not round intermediate calculations. Round your answer to the nearest…
A small strip mining cola company is trying to decide whether it should purchase or lease a new clamshell. If purchased, the shell will cost $150,000 and is expected to have a $65,000 salvage value after 6 years. Alternatively, the company can lease a clamshell for $20,000 per year, but the lease payment will have to be made at the beginning of each year. If the clamshell is purchased, it will be leased to other strip-mining companies whenever possible, an activity that is expected to yield revenue of $12,000 per year. If the company’s MARR is 15% per year, should the clamshell be purchased or leased on the basis of future worth analysis. (Enter the FW value of the selected alternative with proper positive or negative sign)