aj Henrie's Drapery Service is investigating the purchase of a newmachine for cleaning and blocking drapes. The machine wouldcost $171,650, including freight and installation. Henrie's estimatedthe new machine would increase the company's cash inflows, netof expenses, by $50,000 per year. The machine would have afive-year useful life and no salvage value.Required:1. What is the machine's internal rate of return? Note: Roundyour answer to the nearest whole percentage.2. Using a discount rate of 14%, what is the machine's net presentvalue? Interpret your results.3. Suppose the new machine would increase the company'sannual cash inflows, net of expenses, by only $44,130 per year.Under these conditions, what is the internal rate ofreturn? Note: Round your answer to the nearestwhole percentage.1. Internal rate of return%2. Net present value3. Internal rate of return%

IRR is the rate of return on the investment.It is the rate of return where NPV = 0If the cost of…

Answered: Henrie's Drapery Service 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 2CE

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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?
XYZ Company is looking to invest in some new machinery to replace its current malfunctioning one. The new machine, which costs P420,000, would increase annual revenue by P200,000 and annual cash expenses by P50,000. The machine is estimated to have a useful life of 12 years and P30,000 salvage value. A. Accounting rate of return on initial investment B. Accounting rate of return on average investment.
XYZ Company is looking to invest in some new machinery to replace its current malfunctioning one. The new machine, which costs P420,000, would increase annual revenue by P200,000 and annual cash expenses by P50,000. The machine is estimated to have a useful life of 12 years and P30,000 salvage value. Solve for the: A. Payback period in years B. Payback period reciprocal C. Accounting rate of return on initial investment D. Accounting rate of return on average investment.
2. Super Apparel wants to replace an old machine with a new one. The new machine would increase annual revenue by $200,000 and annual operating expenses by $80,000. The new machine would cost $400,000. The estimated useful life of the machine is 10 years with zero salvage value. i. Compute Accounting Rate of Return (ARR) of the machine using above information. ii. Should Super Apparel purchase the machine if management wants an Accounting Rate of Return of 19% on all capital investments? Hint: Use Average Income or Profit after deducting tax, depreciation, and operating expenses.
Peng Company is considering buying a machine that will yield income of $2,400 and net cash flow of $15,100 per year for three years. The machine costs $46,200 and has an estimated $8,100 salvage value. Compute the accounting rate of return for this investment. Accounting Rate of Return Numerator: Denominator: Accounting Rate of Return Accounting rate of return
Kanye Company is evaluating the purchase of a rebuilt spot-welding machine to be used in the manufacture of a new product. The machine will cost $185,000, has an estimated useful life of 7 years, a salvage value of zero, and will increase net annual cash flows by $40,536. Click here to view PV table.What is its approximate internal rate of return? (Round answer to 0 decimal place, e.g. 13%.)
Peng Company is considering buying a machine that will yield income of $2,400 and net cash flow of $16,000 per year for three years. The machine costs $48,900 and has an estimated $8,100 salvage value. Compute the accounting rate of return for this investment. Numerator: Accounting Rate of Return Denominator: = Accounting Rate of Return Accounting rate of return
1. Peach Co. is considering purchasing a new tractor to harvest their premium catnip. The new tractor would cost $646,100 and have a useful life of 14 years and no salvage value. The tractor would allow more catnip to be harvested and increase sales revenue by $276,000 per year and operating expenses by $170,150 per year, including depreciation expenses from the tractor. What is the accounting rate of return? Round your answer to 2 d.p. as a percent. For example, if you believe the answer is 10.71%, enter 10.71 2. Peach Co. spends $250,000 for a new catnip sorting machine. Peach Co. expects net cash inflows of $20,000 in the first year, $50,000 in the second year, and $25,000 over the following 10 years. What is the payback period? Round your answer to 2 d.p.
Ramson Corporation is considering purchasing a machine that would cost $510,510 and have a useful life of 8 years. The machine would reduce cash operating costs by $100,100 per year. The machine would have a salvage value of $107,290 at the end of the project. (Ignore income taxes.) Required: a. Compute the payback period for the machine. (Round your answer to 2 decimal places.) b. Compute the simple rate of return for the machine. (Round your intermediate calculations to nearest whole dollar and your final answer to 2 decimal places.) a. Payback period b. Simple rate of return 3 years %
Nelson Corporation is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net cash flow of $147750. The equipment will have an initial cost of $500,000 and have a 5-year useful life, if the salvage value of the equipment is estimated to be $130,000, what is the accounting rate of return? Multiple Choice O 12.25% 14.75% 29.55% 31.22%
Ramson Corporation is considering purchasing a machine that would cost $609,580 and have a useful life of 9 years. The machine would reduce cash operating costs by $105,100 per year. The machine would have a salvage value of $107,340 at the end of the project. (Ignore income taxes.) Required: a. Compute the payback period for the machine. (Round your answer to 2 decimal places.) b. Compute the simple rate of return for the machine. (Round your intermediate calculations to nearest whole dollar and your final answer to 2 decimal places.) a. Payback period 5.80 years b. Simple rate of return 8.09 %
You are considering purchasing a new injection molding machine. This machinewill have an estimated service life of 10 years with a negligible salvage value.Its annual net operating cash flows are estimated to be $60,000. To expect a 15%rate of return on investment, what would be the maximum amount that should bespent on purchasing the injection molding machine?(a) $301,126 (b) $234,645(c) $600,000 (d) $126,450

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