None Current Attempt in ProgressCullumber Partners is evaluating the replacement of an older machine with either the new SuperPlus or MaxPlus machine. The marketvalue of the original machine is $8,000 but it has an expected salvage value of $1,000 in 5 years. The details regarding the two newmachines are as follows:Reduced Annual PretaxMachineCostUseful LifeSalvage ValueOperating Cash FlowsSuperPlus$25,0005 years$2,000$5,700MaxPlus$38,0005 years$3,000$5,900The company's tax rate is 40% and the machines are Class 10 assets with a 30% CCA rate. The company's required return is 11%.Estimate the NPV of replacement. (Enter negative amounts using either a negative sign preceding the number eg. -45 or parentheses e.g. (45).Round intermediate and final answers to O decimal places, e.g., 2,345.)NPV of SuperPLUS$NPV of MaxPLUS$

Step 1: Step 2: Step 3: Step 4:

Answered: Current Attempt in Progress Cullumber…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 13P

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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.
Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the following cash flows over the next five years: $99,000, $88,000, $92,000. $87,000, and $72,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel. see Appendix C.
The management of XY Company is considering to purchase an equipment to be attached with the main manufacturing machine. The equipment will cost $6,000 and will increase annual cash inflow by $2,200. The useful life of the equipment is 6 years. After 6 years it will have no salvage value. The management wants a 20% return on all investments. Compute net present value (NPV) of this investment project.
The management of Cooky Electronics Company is considering purchasing equipment to be attached to the main manufacturing machine. The equipment will cost P6,000 and will increase annual cash inflow by P2,200. The useful life of the equipment is 6 years. After 6 years it will have no salvage value. The management wants a 20% return on all investments. Compute net present value (NPV) of this investment project.
The management of Kunkel Company is considering the purchase of a $22,000 machine that would reduce operating costs by $5,000 per year. At the end of the machine’s five-year useful life, it will have zero salvage value. The company’s required rate of return is 16%. Required: 1. Determine the net present value of the investment in the machine. 2. What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine?
Foster Company wants to buy a special automated machine to replace an existing manual system. The initial outlay (cost) is $3,500,000. The new machine will last 5 years with no expected salvage value. The expected annual cash flows are as follows: Year Cash Inflow Cash Outflow 0 $ - $ 3,500,000.00 1 $ 3,900,000.00 $ 3,000,000.00 2 $ 3,900,000.00 $ 3,000,000.00 3 $ 3,900,000.00 $ 3,000,000.00 4 $ 3,900,000.00 $ 3,000,000.00 5 $ 3,900,000.00 $ 3,000,000.00 Foster has a cost of capital equal to 10%. 1. Calculate the payback period. Payback period: years
ealthy Food Ltd is considering to invest in one of the two following projects to buy new machinery. Each option will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 7%. The cash flows of the projects are provided below. Machinery 1 Machinery 2 Cost $396,000 $415,000 Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 123,000 194,000 205,000 215,000 228,000 196, 000 204,000 212,000 217,000 233,000 Required: Identify which option of machinery should the company accept based on NPV method (Note: Please round up the result of each calculation of PV to 2 decimal places only for simplification)
Flounder’s Custom Construction Company is considering three new projects, each requiring an equipment investment of $23,320. Each project will last for 3 years and produce the following net annual cash flows. Year AA BB CC 1 $7,420 $10,600 $13,780 2 9,540 10,600 12,720 3 12,720 10,600 11,660 Total $29,680 $31,800 $38,160 The equipment’s salvage value is zero, and Flounder uses straight-line depreciation. Flounder will not accept any project with a cash payback period over 2 years. Flounder’s required rate of return is 12%.Click here to view PV table.(a)Compute each project’s payback period. (Round answers to 2 decimal places, e.g. 15.25.) AA years BB years CC years Which is the most desirable project? The most desirable project based on payback period is Project AAProject BBProject CC Which is the least desirable project? The least desirable project based on payback period is…
A management company is considering purchasing a $27,000 machine that would reduce operating costs by $7,000 per year. At the end of the 5 years of the machine's useful life, it will be zero salvage value. The company requires a rate of return of 12%. 1. Determine the net present value of the investment of the machine? 2.What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine?
Should the following be ignored, or rather added or subtracted from the new machine’spurchase price when estimating initial cash outflow? When estimating the machine’s depreciablebasis?a. The old machine is saleable at S500 in the market.b. Book value of the old machine is $300, it still has 1 year of depreciable life and 2 years ofuseful life.c. Replacement of the old machine with the new one will require $ 1500 additional investmentin inventoryd. Shipment and installation of the new machine at the plant site will incur $ 400e. Training of the machine operator will cost $ 350
A small high-speed commercial centrifuge has the following net cash flows and abandonment values over its useful life Table. The firm’s MARR is 10% per year. Determine the optimal time for the centrifuge to be abandoned if itscurrent MV is $7,500 and it won’t be used for more than five years.
A company is considering two alternative investments in a machine as part of a workshop upgrade. Partial results of some financial analysis are as follows: ARR Payback Period NPV @ 6% IRR pa Machine A 25% 2.9 years $10,666 21% Machine B 33.3% 27% Machine B will cost $20,000 and have estimated annual incremental cash flows of $9,700 for the next 3 years AND an estimated salvage value of $5,800 at the end of the 3 year period. Calculate the Payback Period (PBP) for Machine B assuming cash flows are received evenly throughout the year. Calculate the NPV for Machine B if the cost of capital is 6.8% pa and assuming cash flows are received at the end of each year Explain which machine you would recommend based on all…

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