Payback comparisons Nova Products has a 4-year maximum acceptable payback period. The firm i considering the purchase of a new machine and must choose between two alternatives. The first machine requires an initial investment of $30,000 and generates annual after-tax cash inflows of $7,000 for each of the next 12 years. The second machine requires an initial investment of $21,000 and provides an annual cash inflow after taxes of $6,000 for 26 years. a. Determine the payback period for each machine. b. Comment on the acceptability of the machines, assuming that they are independent projects. c. Which machine should the firm accept? Why?

Payback comparisons Nova Products has a 4-year maximum acceptable payback period. The firm i considering the purchase of a new machine and must choose between two alternatives. The first machine requires an initial investment of $30,000 and generates annual after-tax cash inflows of $7,000 for each of the next 12 years. The second machine requires an initial investment of $21,000 and provides an annual cash inflow after taxes of $6,000 for 26 years. a. Determine the payback period for each machine. b. Comment on the acceptability of the machines, assuming that they are independent projects. c. Which machine should the firm accept? Why?

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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Compute the present value, P, for the following cash flows. You supervise an aging production line that constantly needs maintenance and new parts. Last month you spent $25,000 replacing a failed controller. Should the following plan be accepted if the interest rate is 15%? The net installed cost of the new line to replace the old line is $600,000 with a useful life of six years. In the first year its operating cost will be $100,000, and it will generate annual revenues of $300,000. Each year the operating cost will increase by $5000 and the revenues will fall by $15,000. After six years the equipment will have a value of $100,000 in the next re-building of the line.
Colorado Cleaning has a 5-year maximum acceptable payback period. The firm is considering the purchase of a new washing machine and must choose between two alternative The first machine requires an initial investment of $25,000 and generates annual after-tax cash inflows of $6,500 for each of the next 8 years. The second machine requires an initial investment of $75,000 and provides an annual cash inflow after taxes of $9,500 for 15 years. Which machine should the firm accept? Why?
The investment of $500,000 in an SMP machine is expected to reduce manufacturing costs by $92,500 per year. At the end of the 10-year planning horizon, it is expected the SMP machine will be worth $50,000. Using a 10% MARR and an external rate of return analysis, should the investment be made?
The proposed expansion of CIV Electronics' plant facilities requires the immediate outlay of $102,000. Expected net returns are given in the following table. Calculate the internal rate of return (IRR) Year 1 Year 2 Year 3 $Nil $24,000 $30,000 Year 4 Year 5 Year 6 The internal rate of return is%. (Round to the nearest tenth as needed.) $53,000 $48,000 $17,000
A company is considering the purchase of new testing equipment that is expected to produce 8000 profit during the first year of operation. The amount will decrease by 500 per year for each additional year of ownership. The equipment cost 20000 and will have a salvage value of 3000 after 8 years of use. The minimum attractive rate of return is 18%. You are required to adivice the company whether they will go ahead with the purchase
A business is considering purchasing a piece of new equipment for $200,000. The equipment will generate the following revenues: Year 1: $50,000Year 2: $50,000Year 3: $50,000Year 4: $60,000The machine can be sold at the end of the year four for $25,000. Assume a discount of 8%. 2. What is the compounded return(IRR) for this project?
A manufacturing company is considerign the purchase of new machinery to increase its production capacity. The company has identified a new machine that costs $500,000 and is expected to increase production by 20%. The company expects to sell the additional products for $600,000, resulting in a net profit of $100,000. The company can finance the purchase through a bank loan with an interest rate of 5% over a five year term. What is the expected return on investment (ROI) for the purchase of the new machinery 5% 10% 20% 25%
HT Bowling, Inc is considering the purchase of VOIP phone system. It will require an initial investment of $29,500 and $9,000 per year in annual operating costs over the equipment's estimated useful life of 4 years. The company will use a discount rate of 11%. What is the equivalent annual cost? $3,460 O $12,623 O $26,810 O $18,509
Andes, Inc. is considering the replacement of its manual material handling equipment with autonomous vehicles at a net initial cost of $12 million. The expected annual savings in operating costs are as shown below. MARR is 10% per year compounded annually. End of Year 1 2 3 4 5 6 3 4.5 4.5 Annual savings (millions) | 2.25 | 2.25 | 3 Compute the simple payback period for this replacement option. Determine the discounted payback period (DPBP). It is enough if you determine in which year the DPBP falls.
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KYZ Company is going to purchase an equipment that costs $50,000. Useful life is expected to be 5 years and the required rate of return is 12%, what is the minimum annual cash inflow that the equipment must offer for the investment to be acceptable? (Do not round your PV factors and intermediate calculations. Round your final answer to the nearest dollar.)$17.623$13,870$8,929$12,076
The replacement of a digital printing machine is proposed within a year, the price of said machine is $ 350,000.00. It has been decided within the company, to deposit a monthly saving in an investment that pays 12% per annum capitalizable monthly to get the amount of the cost of the machine at the end of the year, with this information answer the following questions: a). What monthly savings must be deposited to get the capital required for the purchase of the machine? b). Considering the same information over a period of 2 years to get the capital, how much should the monthly deposits be? c). Considering the same information: a discount of $ 75,000.00 pesos is obtained if we make the payment for the machine at 6 months, how much should the six monthly payments be to get said discount?

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