Current Attempt in ProgressThe Management of Carla Vista Manufacturing Company is evaluating two forklift systems to use in its plant that produces the towersfor a windmill power farm. The costs and the cash flows from these systems are shown below. The company uses a 10 percent discountrate for all projects.Year 0DYear 1Year 2Year 3Otis Forklifts$-3,138,450$974,225$1,362,886$2,112,497Craigmore Forklifts$-4,128,410 $876,236 $1,766,225$2,853,110NPVOtis forklift$460,711Craigmore Forklifts$271,442Compute the IRR for each of the two systems. (Round intermediate calculation to O decimal places, e.g. 1,525 and final answers to 2 decimalplaces, e.g. 15.10%.)Otis forkliftCraigmore ForkliftsIRR%%Is the investment decision different from the one determined by NPV?The investment decision iseTextbook and Mediafrom the one determined by NPV.Save for LaterUsing multiple attempts will impact your score.20% score reduction after attempt 2Q SearchAttempts: 0 of 3 usedSubmit Answer

Step 1: The calculation of the IRR ABC1YearOtis forkliftCraigmore forklift20 $ -3,138,450 $…

Answered: Current Attempt in Progress The…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 5E: Cash payback period for a service company Janes Clothing Inc. is evaluating two capital investment...

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Premium Manufacturing Company is evaluating two systems to use in its plant that produces the towers for a windmill power farm. The costs and the cash flows from these systems are shown below. If the company uses a 10 percent discount rate for all projects, determine which forklift system should be purchased using the net present value (NPV) approach. Also, Compute the IRR and Payback Period for each of the two systems. System 1 System 2 Year 0 Year 1 Year 3 Year 2 $1,358,886 -$4,123,450 $1,979,225 $2,111,497 -$5,137,410 $1,875,236 $1,765,225 $2,865,110
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Jim Jones Sleepaway Camps, Inc. is looking for some payback period analysis for a new project in Janestown, Indiana. Suppose that the cost of acquiring the new camp, buildings, cabins, etc. and setting up trails and activities has an initial cost of $1.3M dollars but will generate the following cash-flows for the next four years: Year 1 $450,000 Year 2 $610,000 Year 3 $464,000 Year 4 $575,000 What is the payback period for this project
Internal rate of return method—two projects Munch N' Crunch Snack Company is considering two possible investments: a delivery truck or a bagging machine. The delivery truck would cost $43,056 and could be used to deliver an additional 95,000 bags of pretzels per year. Each bag of pretzels can be sold for a contribution margin of $0.45. The delivery truck operating expenses, excluding depreciation, are $1.35 per mile for 24,000 miles per year. The bagging machine would replace an old bagging machine, and its net investment cost would be $61,614. The new machine would require three fewer hours of direct labor per day. Direct labor is $18 per hour. There are 250 operating days in the year. Both the truck and the bagging machine are estimated to have 7-year lives. The minimum rate of return is 13%. However, Munch N' Crunch has funds to invest in only one of the projects. Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402…
A MS GLOW is considering 2 alternative investment proposals. The first proposal calls for total replacement of the company’s machines and equipment, while the second proposal involves repairing some parts of the existing machines and equipment. The company will only choose to implement one of the proposed projects for this year. The projected cash flows associated with each project are as per table below. The discount rate used by the company is 15%. YEAR TOTAL REPLACEMENT (RM’000) REPAIR (RM’000) 0 -9,000 -2,400 1 3,000 2,000 2 3,000 800 3 3,000 200 4 3,000 200 5 3,000 200 Answer the following questions: (a) Calculate the payback period for each project. (b) Calculate the net present value (NPV) for each project. (c) Calculate the profitability index of each project. (d) Explain to the company which project should be implemented. Support your answer.
Determine cash flows Natural Foods Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The new garden tool is expected to generate additional annual sales of 5,000 units at 18 each. The new manufacturing equipment will cost 120,000 and is expected to have a 10-year life and a 17,000 residual value. Selling expenses related to the new product are expected to be 3% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis: Determine the net cash flows for the first year of the project, Years 29, and for the last year of the project.
Consolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and provide the following cash flows over the next five years: $88,000, 92,000, $91,000, $72,000, and $71,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel, see Appendix C.
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.
Cash payback period for a service company Janes Clothing Inc. is evaluating two capital investment proposals for a retail outlet, each requiring an investment of 975,000 and each with a seven-year life and expected total net cash flows of 1,050,000. Location 1 is expected to provide equal annual net cash flows of 150,000, and Location 2 is expected to have the following unequal annual net cash flows: Determine the cash payback period for both location proposals.
Blossom Industries management is planning to replace some existing machinery in its plant. The cost of the new equipment and the resulting cash flows are shown in the accompanying table. The firm uses an 18 percent discount rate for projects like this. Should management go ahead with the project? Year Cash Flow 0 -$2,970,000 1 787,610 2 869,600 3 1,030,500 4 1,125,360 5 1,354,000 What is the NPV of this project? (Enter negative amounts using negative sign e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.) The NPV is $enter The NPV in dollars rounded to 0 decimal places Should management go ahead with the project? The firm should select an option rejectaccept the project.
Internal Rate of Return Method—Two Projects Munch N’ Crunch Snack Company is considering two possible investments: a delivery truck or a bagging machine. The delivery truck would cost $22,611.6 and could be used to deliver an additional 40,000 bags of pretzels per year. Each bag of pretzels can be sold for a contribution margin of $0.38. The delivery truck operating expenses, excluding depreciation, are $0.52 per mile for 14,000 miles per year. The bagging machine would replace an old bagging machine, and its net investment cost would be $19,417.5. The new machine would require three fewer hours of direct labor per day. Direct labor is $10 per hour. There are 250 operating days in the year. Both the truck and the bagging machine are estimated to have four-year lives. The minimum rate of return is 19%. However, Munch N’ Crunch has funds to invest in only one of the projects. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870…
Question #5 Idaho Farm Services Company has received two proposals for a new General-Purpose Wheat Harvester. Information provided for each harvester is as follows: Master Cutter Master Cutter Model 440 Model 480 Capital investment $415,000 $595,000 Annual cash flows $105,000 $270,000 Estimated useful life 10 years 10 years Idaho Farm uses a discount rate of 9% to evaluate both projects. Note: Factor for the Present Value of an Ordinary Annuity 10 years @9% = 6.41766 Instructions (a) Calculate the net present value of both models. (b) Calculate the profitability index for each model. (c) Which project should Idaho Farm Services accept? (d) What might be some "qualitative" factors to consider?

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