Flynn Corporation is debating whether to purchase a new computerized production system. Tne system will cost $450,000, and have an estimated 10-year life with a salvage value of $70,00. The estimated operating results from the new production system are as follows: Incremental revenue.. $180,000 Incremental expenses:. Expenses other than depreciation.... $85,000 Depreciation (straight-line basis).. 38,000 (123.000) Incremental net income..... $57.000 All revenue and expenses other than depreciation will be received and paid in cash. Compute the following for this proposal: a. Annual net cash flow: $ b. Payback period: years с. Return on average investment: d. Net present value, discounted at an annual rate of 6% (present value of $1 due in 10 years, discounted at 6%, is 0.558; present value of $1 received annually for 10 years, discounted at 6%, is 7.360): $

Flynn Corporation is debating whether to purchase a new computerized production system. Tne system will cost $450,000, and have an estimated 10-year life with a salvage value of $70,00. The estimated operating results from the new production system are as follows: Incremental revenue.. $180,000 Incremental expenses:. Expenses other than depreciation.... $85,000 Depreciation (straight-line basis).. 38,000 (123.000) Incremental net income..... $57.000 All revenue and expenses other than depreciation will be received and paid in cash. Compute the following for this proposal: a. Annual net cash flow: $ b. Payback period: years с. Return on average investment: d. Net present value, discounted at an annual rate of 6% (present value of $1 due in 10 years, discounted at 6%, is 0.558; present value of $1 received annually for 10 years, discounted at 6%, is 7.360): $

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 9P

See similar textbooks

Similar questions

Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $190,000, a 3-year expected life, and after-tax cash flows (labor savings and depreciation) of $87,000 per year; and Machine 360-6, which has a cost of $360,000, a 6-year life, and after-tax cash flows of $98,300 per year. Knitting machine prices are not expected to rise because inflation will be offset by cheaper components (microprocessors) used in the machines. Assume that Filkins’ cost of capital is 14%. Should the firm replace its old knitting machine? If so, which new machine should it use? By how much would the value of the company increase if it accepted the better machine? What is the equivalent annual annuity for each machine?
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?
Although the Chen Company’s milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $110,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $19,000 per year. It would have zero salvage value at the end of its life. The project cost of capital is 10%, and its marginal tax rate is 25%. Should Chen buy the new machine?
GoHigher is planning to purchase a machine that will cost $24,000. It has a six-year life with no salvage value. GoHigher expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. Sales. S90,000 ................. Costs: Manulacturing . Depreciation on machine Selling and adıministrative expenses S52,000 ................ 4,000 30,000 (86.0000) $ 4,000 (2,000) S2,000 Income before taxes.. ******* * Income tax (50%). Net income. .................... What is GoHigher's payback period for this machine? 24 years. 1 year. O 4 years. 12 years. 6 years.
Delaney Company is considering replacing equipment that originally cost $600,000 and has accumulated depreciation of $420,000 to date. A new machine will cost $790,000 and the old equipment can be sold for $8,000. The sunk cost in this situation is a.$290,000 b.$188,000 c.$180,000 d.$172,000 The amount of the average investment for a proposed investment of $201,000 in a fixed asset with a useful life of 4 years, straight-line depreciation, no residual value, and an expected total income of $25,500 for the 4 years is a.$100,500 b.$6,375 c.$50,250 d.$25,500 The _____ method of analyzing capital investment proposals divides the estimated average annual income by the average investment. a.internal rate of return b.net present value c.average rate of return d.cash payback
ABC Company is considering investing in new production equipment at a cost of $60,000 with a 10-year useful life and no salvage value. The following are estimated for Year 1 of the project: Sales = $100,000 Production costs = $82,600 Depreciation expense = $6,000 Calculate the following for ABC Company for Year 1: Operating income = $ Average investment = $ Accounting rate of return = %
10. Flynn Corporation is debating whether to purchase a new computerized production system. The system will cost $450,000, and have an estimated 10- year life with a salvage value of $70,000. The estimated operating results from the new production system are as follows: Incremental revenue.. Incremental expenses: Expenses other than depreciation. Depreciation (straight-line basis) Incremental net income. $85,000 38,000 $180,000 (123,000) $57,000 All revenue and expenses other than depreciation will be received and paid in cash. Compute the following for this proposal: (rounded) (a) Annual net cash flow: $ (b) Payback period: (c) Return on average investment: (d) Net present value, discounted at an annual rate of 6% (present value of $1 due in 10 years, discounted at 6%, is 0.558; present value of $1 received annually for 10 years, discounted at 6%, is 7.360): $
Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $480,000 cost with an expected four-year life and a $20,000 salvage value. All sales are for cash, and all costs are out-of-pocket, except for depreciation on the new machine. Additional information includes the following. Expected annual sales of new product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,840,000 Expected annual costs of new product Direct materials . 480,000 Direct labor 672,000 Overhead (excluding straight-line depreciation on new machine) . 336,000 Selling and administrative expenses 160,000 Income taxes . 30% Required 1. Compute straight-line depreciation for each year of this new machine’s life. (Round depreciation amounts to the nearest dollar.) 2. Determine expected net income and net cash flow for each year of this machine’s life. (Round answers to the nearest dollar.) 3. Compute this machine’s…
Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $511,000 cost with an expected four-year life and a $19,000 salvage value. All sales are for cash, and all costs are out-of-pocket, except for depreciation on the new machine. Additional information includes the following. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Expected annual sales of new product $ 1,930,000 Expected annual costs of new product Direct materials 480,000 Direct labor 673,000 Overhead (excluding straight-line depreciation on new machine) 335,000 Selling and administrative expenses 163,000 Income taxes 40 % Required:1. Compute straight-line depreciation for each year of this new machine’s life.2. Determine expected net income and net cash flow for each year of this machine’s life.3. Compute this machine’s payback period,…
Cortino Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $300,000 cost with an expected four-year life and a $20,000 salvage value. All sales are for cash and all costs are out-of-pocket, except for depreciation on the new machine. Additional information includes the following. Expected annual sales of new product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,150,000 Expected annual costs of new product Direct materials . 300,000 Direct labor 420,000 Overhead (excluding straight-line depreciation on new machine) . 210,000 Selling and administrative expenses 100,000 Income taxes . 30% Required 1. Compute straight-line depreciation for each year of this new machine’s life. (Round depreciation amounts to the nearest dollar.) 2. Determine expected net income and net cash flow for each year of this machine’s life. (Round answers to the nearest dollar.) 3. Compute this machine’s…
Longmont Corporation is considering the purchase of a machine costing $44,000 with a 5-year useful life and no salvage value. Longmont uses straight- line depreciation and assumes that the annual cash inflow from the machine will be received uniformly throughout each year. In calculating the accounting rate of return, what is Longmont's average investment? Multiple Choice $26,400. $44,000. O $10,560. $8,800. $22,000.
Required Information [The following information applies to the questions displayed below.] Project A requires a $365,000 initial investment for new machinery with a five-year life and a salvage value of $42,000. The company uses straight-line depreciation. Project A is expected to yield annual net income of $25,300 per year for the next five years. Compute Project A's accounting rate of return. Choose Numerator: Accounting Rate of Return I Choose Denominator: = Accounting Rate of Return Accounting rate of return