Question 1Alpha Engineering Ltd. is considering the purchase of a new cnc.machine tool to replace four old capstan lathes. The new machine willcost £150,000 and is expected to last five years, after which it is expectedto realise a scrap value of £10,000.Additional dedicated tooling for the new machine will cost a further£25,000. A maintenance contract will be taken out to cover the machineat a cost of £10,000 per annum. The maintenance of the additionaldedicated tooling will be done in-house at an estimated cost of £5,000 peryear. A cnc. programmer/operator will be recruited at a cost of £20,000per year.The benefits expected from the new cnc. machine will include the scrapvalue of the old machines, which is expected to be £5,000 each. Thewages of four capstan operators of £17,000 per annum each plus the costof a maintenance fitter at £18,000 per annum can also be considered as abenefit. A further saving of £10,000 per year in reduced scrap/reworkcosts should also be realised.If the firm's cost of capital is 10%;-1) Draw the cash flow forecast.2) Evaluate the proposed investment using the following techniques;a) Paybackb) Return on Investment

Draw the cash flow forecast Particulars Calculation Amount Maintenance contracted (10,000)…

Answered: If the firm's cost of capital is 10%;-…

If the firm's cost of capital is 10%;- 1) Draw the cash flow forecast. 2) Evaluate the proposed investment using the following techniques; a) Payback b) Return on Investment

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You are provided with the following details of a proposed investment in a new machine: The factory will cost £500,000 to acquire and install and will have a useful life of 20 years. At the end of the useful life of the machine, it is forecast that it can be sold for spare parts and scrap metal for £20,000. Depreciation is to be charged on a straight-line basis. If the machine is acquired, its production activity is forecast to generate revenue of £830,000 per year. The other annual costs, apart from depreciation, resulting from use of the machine are forecast to be You are provided with the following details of a proposed investment in a new machine: The factory will cost £500,000 to acquire and install and will have a useful life of 20 years. At the end of the useful life of the machine, it is forecast that it can be sold for spare parts and scrap metal for £20,000. Depreciation is to be charged on a straight-line basis. If the machine is acquired, its production activity is forecast…
Question: Elsies Limited is considering the purchase of a machine to manufacture some of the spare parts for the catering equipment during 2025. The company desires a minimum required rate of return of 12%. The machine will cost R2 000 000 plus R400 000 for installation and is predicted to have a useful life of five years. A salvage value of R100 000 is estimated. The machine is expected to generate cash inflows of R800 000 per year but will require the employment of two new machine operators at R100 000 per year for each operator, and it will require maintenance and repairs averaging R40 000 per year. Depreciation will be calculated using the straight-line method. Calculate Benefit Cost ratio(expressed to two decimal places)
You are provided with the following details of a proposed investment in a new machine: The factory will cost £500,000 to acquire and install and will have a useful life of 20 years. At the end of the useful life of the machine, it is forecast that it can be sold for spare parts and scrap metal for £20,000. Depreciation is to be charged on a straight-line basis. If the machine is acquired, its production activity is forecast to generate revenue of £830,000 per year. The other annual costs, apart from depreciation, resulting from use of the machine are forecast to be You are provided with the following details of a proposed investment in a new machine: The factory will cost £500,000 to acquire and install and will have a useful life of 20 years. At the end of the useful life of the machine, it is forecast that it can be sold for spare parts and scrap metal for £20,000. Depreciation is to be charged on a straight-line basis. If the machine is acquired, its production activity is forecast…
Question: Elsies Limited is considering the purchase of a machine to manufacture some of the spare parts for the catering equipment during 2025. The company desires a minimum required rate of return of 12%. The machine will cost R2 000 000 plus R400 000 for installation and is predicted to have a useful life of five years. A salvage value of R100 000 is estimated. The machine is expected to generate cash inflows of R800 000 per year but will require the employment of two new machine operators at R100 000 per year for each operator, and it will require maintenance and repairs averaging R40 000 per year. Depreciation will be calculated using the straight-line method. Benefit Cost Ratio (expressed to two decimal places).
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Happy Meal Limited a food manufacturer is considering purchasing a new machine for £320,000. The company is expecting an annual cash inflow of £105,000 from the sale of products and an annual cash outflow of £15,500 for each of the six years of the machine's useful life. The annual cash outflows do not include annual depreciation charges for the machine. The machine is depreciated using a 15% reducing method. The machine is expected to last for six years, with a residual value estimated to be at the rate of 10% of the original cost of the machine. The cost of capital for Happy Meal Limited is 12%. You are required to: (a) Calculate using the following investment appraisal techniques, and provide brief recommendations as to the economic feasibility of acquiring the machine: i. The Payback Period. ii. The Accounting Rate of Return. ii. The Net Present Value. iv. The Internal Rate of Return (to two decimal places)
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