Vishno Dynamic - Problem and answer changes with each attempt (consider an Excel solution)Monet, Incorporated, is considering the purchase of a machine that would cost $ 515,125 and would last for 6 years, at the end of which, themachine would have a salvage value of $ 60,723. The machine would reduce labor and other costs by $ 123,389 per year. Additional workingcapital of $ 13,335 would be needed immediately, all of which would be recovered at the end of 6 years. The company requires a minimum pretaxreturn of 0.10 on all investment projects. (Ignore income taxes.)Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.or Use Excel NPV formula.Required:Determine the net present value of the project. (Negative amount should be indicated by a minus sign. Round your intermediatecalculations and final answer to the nearest whole dollar amount.)

Net present value (NPV) is the difference between the current value of cash and the future worth of…

Answered: Dynamic - Problem and answer changes…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 4P

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Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return In Excel, see Appendix C.
New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer’s base price is $1,080,000, and it would cost another $22,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $605,000. The MACRS rates for the first 3 years are 0.3333, 0.4445, and 0.1481. 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 $380,000 per year in before-tax operating costs, mainly labor. Campbell’s marginal tax rate is 35%. What is the Year-0 cash flow? What are the net operating cash flows in Years 1, 2, and 3? What is the additional Year-3 cash flow (i.e., the after-tax salvage and the return of working capital)? If the project’s cost of capital is 12%, should the machine be purchased?
Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $420,000 and will generate $95,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further Instructions on internal rate of return in Excel, see Appendix C.
Austins cell phone manufacturer wants to upgrade their product mix to encompass an exciting new feature on their cell phone. This would require a new high-tech machine. You are excited about his new project and are recommending the purchase to your board of directors. Here is the information you have compiled in order to complete this recommendation: According to the information, the project will last 10 years and require an initial investment of $800,000, depreciated with straight-line over the life of the project until the final value is zero. The firms tax rate is 30% and the required rate of return is 12%. You believe that the variable cost and sales volume may be as much as 10% higher or lower than the initial estimate. Your boss understands the risks but asks you to explain the alternatives in a brief memo to the board, Write a memo to the Board of Directors objectively weighing out the pros and cons of this project and make your recommendation(s).
Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.
Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
Flanders Manufacturing is considering purchasing a new machine that will reduce variable costs per part produced by $0.15. The machine will increase fixed costs by $18,250 per year. The information they will use to consider these changes is shown here.
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 a manufacturing company is planning to buy a new milling machine. The investment cost is $17,613. At the end of its 6-year expected life, the equipment will have a salvage value of $8,000. There is an upgrade cost of $9,572 at the end of year 3. The equipment can save $5,000 per year by increasing productivity. Suppose that ϵ=MARR=18%. Determine the project’s ERR.
The management of Ballard MicroBrew is considering the purchase of an automated bottling machinefor $120,000. The machine would replace an old piece of equipment that costs $30,000 per year to operate. The new machine would cost $12,000 per year to operate. The old machine currently in use couldbe sold now for a scrap value of $40,000. The new machine would have a useful life of 10 years with nosalvage value.Required:Compute the simple rate of return on the new automated bottling machine.
Your company is considering an expansion into a new product area. The company has collected the following information about the proposed product. (Note: You may or may not need to use all of this information, use only the information that is relevant.) The project has an anticipated economic life of 5 years. The company will have to purchase a new machine to produce the product. The machine has an up-front cost (T = 0) of $750,000. The machine will be depreciated on a straight-line basis over 5 years (that is, the company's depreciation expense will be $150,000 in each of the first five years (T = 1, 2, 3, 4, and 5). The company anticipates that the machine will last for at least five years, and that after five years, its before-tax salvage value will equal $100,000. If the company goes ahead with the project, it will have an effect on the company's net working capital. At the outset, T = 0, inventory will increase by $50,000 and accounts payable will increase by $30,000. At T =…
Dynamic - Problem and answer changes with each attempt (consider an Excel solution) Monet, Incorporated, is considering the purchase of a machine that would cost $ 517,266 and would last for 6 years, at the end of which, the machine would have a salvage value of $ 56,601. The machine would reduce labor and other costs by $ 121,592 per year. Additional working capital of $ 13,703 would be needed immediately, all of which would be recovered at the end of 6 years. The company requires a minimum pretax return of 0.11 on all investment projects. (Ignore income taxes.) Click here to view Exhibit 14B-1 and Exhibit 14B-2 , to determine the appropriate discount factor(s) using the tables provided. or Use Excel NPV formula. Required: Determine the net present value of the project. (Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to the nearest whole dollar amount.) Type your answer...

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