None Gamma ElectronicsGamma Electronics is considering the purchase of testing equipment thatwill cost $500,000 to replace old equipment. Assume the new machine willgenerate after-tax savings of $250,000 per year over the next four years.If Gamma Electronics has a 15% cost of capital, what's the IRR of theinvestment?3a. 23.4%b. 15.0%c. 34.9%d. 100.0%

In conclusion, the Internal Rate of Return (IRR) is a crucial financial metric used to evaluate the…

Answered: Gamma Electronics Gamma Electronics is…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 9E: Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required:...

See similar textbooks

Similar questions

Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required: 1. Patz Corporation is considering the purchase of a computer-aided manufacturing system. The cash benefits will be 800,000 per year. The system costs 4,000,000 and will last eight years. Compute the NPV assuming a discount rate of 10 percent. Should the company buy the new system? 2. Sterling Wetzel has just invested 270,000 in a restaurant specializing in German food. He expects to receive 43,470 per year for the next eight years. His cost of capital is 5.5 percent. Compute the internal rate of return. Did Sterling make a good decision?
Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?
Redbird Company is considering a project with an initial investment of $265,000 in new equipment that will yield annual net cash flows of $45,800 each year over its seven-year life. The companys minimum required rate of return is 8%. What is the internal rate of return? Should Redbird accept the project based on IRR?
Manzer Enterprises is considering two independent investments: A new automated materials handling system that costs 900,000 and will produce net cash inflows of 300,000 at the end of each year for the next four years. A computer-aided manufacturing system that costs 775,000 and will produce labor savings of 400,000 and 500,000 at the end of the first year and second year, respectively. Manzer has a cost of capital of 8 percent. Required: 1. Calculate the IRR for the first investment and determine if it is acceptable or not. 2. Calculate the IRR of the second investment and comment on its acceptability. Use 12 percent as the first guess. 3. What if the cash flows for the first investment are 250,000 instead of 300,000?
Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a net cash inflow one year from now of 810,000. Assume the cost of capital is 10 percent. Required: 1. Break the 810,000 future cash inflow into three components: a. The return of the original investment b. The cost of capital c. The profit earned on the investment 2. Now, compute the present value of the profit earned on the investment. 3. Compute the NPV of the investment. Compare this with the present value of the profit computed in Requirement 2. What does this tell you about the meaning of NPV?
Washington-Pacific (W-P) invested $4 million to buy a tract of land and plant some young pine trees. The trees can be harvested in 10 years, at which time W-P plans to sell the forest at an expected price of $8 million. What is W-P’s expected 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.
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.
Maven Design Inc. is considering two investment projects, X and Y. Company’s cost of capital is 7.50% and that the investments will produce the following after-tax cash flows (in thousands of dollars): Year Project X Project Y 0 −$1,100 −$2,700 1 $550 $650 2 $600 $750 3 $100 $800 4 $100 $1,400 A. Calculate the NPV, IRR, MIRR, regular payback period, discounted payback period, and profitability index for each project. For each selection criterion, indicate the correct accept/reject decision for each project and ranking (best acceptable project). Assume a 3-year payback acceptance criterion for the company. Project X Project Y Accept/Reject Ranking NPV ($) IRR (%) MIRR (%) Payback Period (Years) Discounted PB (Years) PI B. If the two projects are independent and the cost of capital is 7.5%, which…
Question Green Landscaping, Inc. is using net present value (NPV) when evaluating projects. Green Landscaping's cost of capital is 8.04 percent. What is the NPV of a project if the initial costs are $1,915,222 and the project life is estimated as 10 years? The project will produce the same after-tax cash inflows of $698,670 per year at the end of the year. Round the answer to two decimal places. check_circle Expert Answer thumb_up thumb_down Step 1 Given information is: Initial investment = $19,15,222 Project life = 10 years Annual cash inflow = $698,670 Cost of capital = 8.04% Step 2 Net present value of project = Present value of cash inflows - Initial investment I don't understand how this answer is derived (in bold). Present value of cash inflows = (Annual cash inflows * Present value factor @8.04% for 10 years) = 698670 * 6.6979 = $46,79,621.79 Net present value of project = 46,79,621.79 - 1915222 = $27,64,399.79
X-treme Vitamin Company is considering two investments, both of which cost $10,000. The cash flows are as follows: Project Project B Year 1 $12,000 $10,000 8,000 0,000 3 6,000 18,000 a. Which of the two projects should be chosen based on the payback method? b. Which of the two projects should be chosen based on the net present value method? Assume a cost of capital of 10 percent. c. Should a firm normally have more confidence in answer a or answer b?

SEE MORE QUESTIONS

Recommended textbooks for you

Cornerstones of Cost Management (Cornerstones Ser…

Accounting

ISBN:

9781305970663

Author:

Don R. Hansen, Maryanne M. Mowen

Publisher:

Cengage Learning

Principles of Accounting Volume 2

Accounting

ISBN:

9781947172609

Author:

OpenStax

Publisher:

OpenStax College

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Cornerstones of Cost Management (Cornerstones Ser…

Accounting

ISBN:

9781305970663

Author:

Don R. Hansen, Maryanne M. Mowen

Publisher:

Cengage Learning

Principles of Accounting Volume 2

Accounting

ISBN:

9781947172609

Author:

OpenStax

Publisher:

OpenStax College

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Managerial Accounting

Accounting

ISBN:

9781337912020

Author:

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

Publisher:

South-Western College Pub

Financial And Managerial Accounting

Accounting

ISBN:

9781337902663

Author:

WARREN, Carl S.

Publisher:

Cengage Learning,

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

SEE MORE TEXTBOOKS