(a)Compute the (1) net present value, (2) profitability index, and (3) internal rate of return for each option. (Hint: To solve for internalrate of return, experiment with alternative discount rates to arrive at a net present value of zero.) (If the net present value isnegative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answers for present value and IRR to 0decimal places, e.g. 125 and round profitability index to 2 decimal places, e.g. 12.50. For calculation purposes, use 5 decimal places asdisplayed in the factor table provided.)Option AOption B$$Net Present ValueProfitability IndexInternal Rate of Return%% Carla Vista Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an initial lowercost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure, but itsmaintenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to have a salvage value at theend of its useful life. The following estimates were made of the cash flows. The company's cost of capital is 5%.Initial costAnnual cash inflowsAnnual cash outflowsCost to rebuild (end of year 4)Salvage valueEstimated useful lifeOption A$194,000$72,600$28,100$51,200$07 yearsOption B$291,000$82,000$25,100$0$9,0007 years

Net present value is the most important method of capital budgeting and is based on the time value…

Compute the (1) net present value, (2) profitability index, and (3) internal rate of return for each option. (Hint: To solve for int ate of return, experiment with alternative discount rates to arrive at a net present value of zero.) (If the net present value is egative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answers for present value and IRR to lecimal places, e.g. 125 and round profitability index to 2 decimal places, e.g. 12.50. For calculation purposes, use 5 decimal places a lisplayed in the factor table provided.) Option A Option B $ $ Net Present Value Profitability Index Internal Rate of Return % %

Compute the (1) net present value, (2) profitability index, and (3) internal rate of return for each option. (Hint: To solve for int ate of return, experiment with alternative discount rates to arrive at a net present value of zero.) (If the net present value is egative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answers for present value and IRR to lecimal places, e.g. 125 and round profitability index to 2 decimal places, e.g. 12.50. For calculation purposes, use 5 decimal places a lisplayed in the factor table provided.) Option A Option B $ $ Net Present Value Profitability Index Internal Rate of Return % %

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 10E: Roberts Company is considering an investment in equipment that is capable of producing more...

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Cullumber Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure, but its maintenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimates were made of the cash flows. The company's cost of capital is 5%. Initial cost Annual cash inflows Annual cash outflows Cost to rebuild (end of year 4) Salvage value Estimated useful life Click here to view the factor table Your answer is partially correct Option A Option B Option A $170,000 $70,200 $30,700 $49,000 $ Compute the (1) net present value. (2) profitability index, and (3) internal rate of return for each option. (Hint: To solve for internal rate of return, experiment with alternative discount rates to arrive at a net present…
Compute the (1) net present value, (2) profitability index, and (3) internal rate of return for each option. (Hint: To solve for internal rate of return, experiment with alternative discount rates to arrive at a net present value of zero.) (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answers for present value and IRR to 0 decimal places, e.g. 125 and round profitability index to 2 decimal places, e.g. 12.50. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Option A Option B tA $ $ Net Present Value 103345 Profitability Index 1.55 Internal Rate of Return do % %
Carla Vista Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure, but its maintenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimates were made of the cash flows. The company's cost of capital is 5%. Option A Option B Initial cost $194,000 $291,000 Annual cash inflows $72,600 $82,000 Annual cash outflows $28,100 $25,100 Cost to rebuild (end of year 4) $51,200 $0 Salvage value $0 $9,000 Estimated useful life 7 years 7 years Click here to view the factor table. (a) Your answer is partially correct. Compute the (1) net present value, (2) profitability index, and (3) internal rate of return for each option. (Hint: To solve for internal rate of return, experiment with…
Sandhill Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure, but its maintenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimates were made of the cash flows. The company's cost of capital is 6%. Option A Option B Initial cost $170,000 $274,000 Annual cash inflows $72,200 $82,200 Annual cash outflows $31,400 $26,700 Cost to rebuild (end of year 4) $50,100 $0 Salvage value $0 $8,200 Estimated useful life 7 years 7 years Click here to view PV table. (a) * Your answer is incorrect. Compute the (1) net present value, (2) profitability index, and (3) internal rate of return for each option. (Hint: To solve for internal rate of return, experiment with alternative discount…
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Brooks Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure, but its maintenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimates were made of the cash flows. The company's cost of capital is 7%. Initial cost Annual cash inflows Annual cash outflows Cost to rebuild (end of year 4) Salvage value Estimated useful life Option A $155,000 $70,700 $32,000 $48,300 $0 7 years Option B $262,000 $80,400 $25,700 $0 $8,100 7 years
The Umbrella company is planning to purchase a substance known as Serum A. Serum A would cost $45,000 and would have a useful life of 10 years with zero salvage value. The expected annual cash flow of the serum is $9,500. Management wants a 20% return on all investments. Use the provided present value tables for this question. If you use excel or a different table your answer will be marked incorrect by the quiz autograder. Required: 1. Compute the internal rate of return (IRR) for Serum X. Your answer should be in numberical form (DO NOT include the percentage sign) and will be enter as between two percentages o Between % % and 2. Should Umbrella company invest in Serum X based on it's required rate of return of 20%? Enter your answer as Yes or No.
Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $193,900 and has an estimated useful life of 8 years with zero salvage value. Management estimates that the new bottling machine will provide net annual cash flows of $30,600. Management also believes that the new bottling machine will save the company money because it is expected to be more reliable than other rpachines, and thus will reduce downtime. Assume a discount rate of 7%. Click here to view the factor table. Calculate the net present value. (If the net present value is negative, use either a negative sign preceding the number eg-45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to 0 decimal places, eg. 125) Net present value $ How much would the reduction in downtime have to be worth in order for the project to be acceptable? (Round answer to 0 decimal places, e.g. 125.)
Roberts Company is considering an investment in equipment that is capable of producing more efficiently than the current technology. The outlay required is 2,293,200. The equipment is expected to last five years and will have no salvage value. The expected cash flows associated with the project are as follows: Required: 1. Compute the projects payback period. 2. Compute the projects accounting rate of return. 3. Compute the projects net present value, assuming a required rate of return of 10 percent. 4. Compute the projects internal rate of return.
The management of Ryland International Is considering Investing in a new facility and the following cash flows are expected to result from the investment: A. What Is the payback period of this uneven cash flow? B. Does your answer change if year 6s cash inflow changes to $920,000?
Cullumber Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $163,500 and has an estimated useful life of 8 years with zero salvage value. Management estimates that the new bottling machine will provide net annual cash flows of $30,700. Management also believes that the new bottling machine will save the company money because it is expected to be more reliable than other machines, and thus will reduce downtime. Assume a discount rate of 12%. Click here to view PV table. Calculate the net present value. (If the net present value is negative, use either a negative sign preceding the number eg-45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to O decimal places, eg. 125) Net present value $ How much would the reduction in downtime have to be worth in order for the project to be acceptable? (Round answer to O decimal places, e.g. 125) $