Do not give answer in image Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would beappropriate are presently on the market. The company has determined the following:Machine A could be purchased for $69.000. It will last 10 years with annual maintenance costs of $2,200 per year. After 10 years themachine can be sold for $7,245.Machine B could be purchased for $57,500. It also will last 10 years and will require maintenance costs of $8,800 in year three.$11,000 in year six, and $13,200 in year eight. After 10 years, the machine will have no salvage value.Required:Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at theend of each year. Ignore income tax considerations.Calculate the present value of Machine A & Machine B. Which machine Esquire should purchase?Note: Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your final answers tonearest whole dollar amount. Use tables, Excel, or a financial calculator. (EV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 andPVAD of $1)Machine AMachine BEsquire should purchasePV

Net Present Value is also known as NPV. it is a capital budgeting techniques which help in decision…

Answered: Esquire Company needs to acquire a…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 14P

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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?
Mallette Manufacturing, Inc., produces washing machines, dryers, and dishwashers. Because of increasing competition, Mallette is considering investing in an automated manufacturing system. Since competition is most keen for dishwashers, the production process for this line has been selected for initial evaluation. The automated system for the dishwasher line would replace an existing system (purchased one year ago for 6 million). Although the existing system will be fully depreciated in nine years, it is expected to last another 10 years. The automated system would also have a useful life of 10 years. The existing system is capable of producing 100,000 dishwashers per year. Sales and production data using the existing system are provided by the Accounting Department: All cash expenses with the exception of depreciation, which is 6 per unit. The existing equipment is being depreciated using straight-line with no salvage value considered. The automated system will cost 34 million to purchase, plus an estimated 20 million in software and implementation. (Assume that all investment outlays occur at the beginning of the first year.) If the automated equipment is purchased, the old equipment can be sold for 3 million. The automated system will require fewer parts for production and will produce with less waste. Because of this, the direct material cost per unit will be reduced by 25 percent. Automation will also require fewer support activities, and as a consequence, volume-related overhead will be reduced by 4 per unit and direct fixed overhead (other than depreciation) by 17 per unit. Direct labor is reduced by 60 percent. Assume, for simplicity, that the new investment will be depreciated on a pure straight-line basis for tax purposes with no salvage value. Ignore the half-life convention. The firms cost of capital is 12 percent, but management chooses to use 20 percent as the required rate of return for evaluation of investments. The combined federal and state tax rate is 40 percent. Required: 1. Compute the net present value for the old system and the automated system. Which system would the company choose? 2. Repeat the net present value analysis of Requirement 1, using 12 percent as the discount rate. 3. Upon seeing the projected sales for the old system, the marketing manager commented: Sales of 100,000 units per year cannot be maintained in the current competitive environment for more than one year unless we buy the automated system. The automated system will allow us to compete on the basis of quality and lead time. If we keep the old system, our sales will drop by 10,000 units per year. Repeat the net present value analysis, using this new information and a 12 percent discount rate. 4. An industrial engineer for Mallette noticed that salvage value for the automated equipment had not been included in the analysis. He estimated that the equipment could be sold for 4 million at the end of 10 years. He also estimated that the equipment of the old system would have no salvage value at the end of 10 years. Repeat the net present value analysis using this information, the information in Requirement 3, and a 12 percent discount rate. 5. Given the outcomes of the previous four requirements, comment on the importance of providing accurate inputs for assessing investments in automated manufacturing systems.
ces Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following: Machine A could be purchased for $69,000. It will last 10 years with annual maintenance costs of $2,200 per year. After 10 years the machine can be sold for $7,245. Machine B could be purchased for $57,500. It also will last 10 years and will require maintenance costs of $8,800 in year three, $11,000 in year six, and $13,200 in year eight. After 10 years, the machine will have no salvage value. Required: Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year. Ignore income tax considerations. Calculate the present value of Machine A & Machine B. Which machine Esquire should purchase? Note: Do not round intermediate calculations. Round your final answers to nearest whole dollar…
Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following: Machine A could be purchased for $33,000. It will last 10 years with annual maintenance costs of $1,100 per year. After 10 years the machine can be sold for $3,465. Machine B could be purchased for $27,500. It also will last 10 years and will require maintenance costs of $4,400 in year three, $5,500 in year six, and $6,600 in year eight. After 10 years, the machine will have no salvage value. Required: Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year. Ignore income tax considerations. Calculate the present value of Machine A & Machine B. Which machine Esquire should purchase?
Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following: Machine A could be purchased for $69,000. It will last 10 years with annual maintenance costs of $2,200 per year. After 10 years the machine can be sold for $7,245, Machine B could be purchased for $57,500. It also will last 10 years and will require maintenance costs of $8,800 in year three, $11,000 in year six, and $13,200 in year eight. After 10 years, the machine will have no salvage value. Required: Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year. Ignore income tax considerations. Calculate the present value of Machine A & Machine B. Which machine Esquire should purchase? Note: Negative amounts should be indicated by a minus sign. Do not round Intermediate calculations.…
Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following: Machine A could be purchased for $15,000. It will last 10 years with annual maintenance costs of $500 per year. After 10 years the machine can be sold for $1,575. Machine B could be purchased for $12,500. It also will last 10 years and will require maintenance costs of $2,000 in year three, $2,500 in year six, and $3,000 in year eight. After 10 years, the machine will have no salvage value. Required: Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year. Ignore income tax considerations. Calculate the present value of Machine A & Machine B. Which machine Esquire should purchase? Note: Do not round intermediate calculations. Round your final answers to nearest whole dollar amount. Use…
Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following: Machine A could be purchased for $48,000. It will last 10 years with annual maintenance costs of $1,000 per year. After 10 years the machine can be sold for $5,000. Machine B could be purchased for $40,000. It also will last 10 years and will require maintenance costs of $4,000 in year three, $5,000 in year six, and $6,000 in year eight. After 10 years, the machine will have no salvage value.
Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following:Machine A could be purchased for $48,000. It will last 10 years with annual maintenance costs of $1,000 per year. After 10 years the machine can be sold for $5,000.Machine B could be purchased for $40,000. It also will last 10 years and will require maintenance costs of $4,000 in year three, $5,000 in year six, and $6,000 in year eight. After 10 years, the machine will have no salvage value.Required:Determine which machine Esquire should purchase. Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year. Ignore income tax considerations.
Kiddy Toy Corporation needs to acquire the use of a machine to be used in its manufacturing process. The machine needed is manufactured by Lollie Corporation. The machine can be used for 10 years and then sold for $28,000 at the end of its useful life. Lollie has presented Kiddy with the following options: Buy machine. The machine could be purchased for $178,000 in cash. All maintenance costs, which approximate $23,000 per year, would be paid by Kiddy. Lease machine. The machine could be leased for a 10-year period for an annual lease payment of $43,000 with the first payment due immediately. All maintenance costs will be paid for by the Lollie Corporation and the machine will revert back to Lollie at the end of the 10-year period. Required: Assuming that a 9% interest rate properly reflects the time value of money in this situation and that all maintenance costs are paid at the end of each year, determine which option Kiddy should choose. Ignore income tax considerations. Note:…
Kiddy Toy Corporation needs to acquire the use of a machine to be used in its manufacturing process. The machine needed is manufactured by Lollie Corporation. The machine can be used for 11 years and then sold for $16,000 at the end of its useful life. Lollie has presented Kiddy with the following options: 1. Buy machine. The machine could be purchased for $166,000 in cash. All maintenance costs, which approximate $11,000 per year, would be paid by Kiddy. 2. Lease machine. The machine could be leased for a 11-year period for an annual lease payment of $31,000 with the first payment due immediately. All maintenance costs will be paid for by the Lollie Corporation and the machine will revert back to Lollie at the end of the 11-year period. Required: Assuming that a 11% interest rate properly reflects the time value of money in this situation and that all maintenance costs are paid at the end of each year, determine which option Kiddy should choose. Ignore income tax considerations. Note:…
Kiddy Toy Corporation needs to acquire the use of a machine to be used in its manufacturing process. The machine needed is manufactured by Lollie Corporation. The machine can be used for 15 years and then sold for $20,000 at the end of its useful life. Lollie has presented Kiddy with the following options: 1. Buy machine. The machine could be purchased for $170,000 in cash. All maintenance costs, which approximate $15,000 per year, would be paid by Kiddy. 2. Lease machine. The machine could be leased for a 15-year period for an annual lease payment of $35,000 with the first payment due immediately. All maintenance costs will be paid for by the Lollie Corporation and the machine will revert back to Lollie at the end of the 15-year period. Required: Assuming that a 12% interest rate properly reflects the time value of money in this situation and that all maintenance costs are paid at the end of each year, determine which option Kiddy should choose. Ignore income tax considerations. Note:…
A land development company is considering the purchase of earth-moving equipment. The equipment will have a first cost of $190,000 and a salvage value of $70000 when the company sells it in 10 years. A service contract for maintenance on the equipment will cost $40000 per year. The operating cost is expected to be $260 per day. Alternatively, the company can rent the necessary equipment for $1100 per day and hire a driver at $180 per day. If the company's MARR is 10% per year, how many days per year must the company need the equipment in order to justify its purchase? Alternatively

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