Waterways puts much emphasis on cash flow when it plans for capital investments. The company chose its discount rate of 8% basedon the rate of return it must pay its owners and creditors. Using that rate, Waterways then uses different methods to determine thebest decisions for making capital outlays.This year Waterways is considering buying five new backhoes to replace the backhoes it now has. The new backhoes are faster, costless to run, provide for more accurate trench digging, have comfort features for the operators, and have 1-year maintenanceagreements to go with them. The old backhoes are working just fine, but they do require considerable maintenance. The backhoeoperators are very familiar with the old backhoes and would need to learn some new skills to use the new backhoes.The following information is available to use in deciding whether to purchase the new backhoes.Purchase cost when newSalvage value nowInvestment in major overhaul needed in next yearSalvage value in 8 yearsRemaining lifeNet cash flow generated each yearNet Present ValueWaterways shouldClick here to view PV table.(a) Evaluate in the following ways whether to purchase the new equipment or overhaul the old equipment. (Hint: For the old machine,the initial investment is the cost of the overhaul. For the new machine, subtract the salvage value of the old machine to determine theinitial cost of the investment.)New BackhoesOld Backhoes$91,400$41,400$54,112$15,200(1) Using the net present value method for buying new or keeping the old. (For calculation purposes, use 5 decimal places as displayed inthe factor table provided. If the net present value is negative, use either a negative sign preceding the number eg-45 or parentheses eg (45).Round final answer to 0 decimal places, e.g. 5,275.)buy New Backhoes1435268 years$30,400New Backhoes$199,994equipment.$88,0008 years$44,300Old Backhoes128798 Payback PeriodWaterways should retain Old Backhoes equipment.Profitability IndexNew Backhoes3.58 years(3) Comparing the profitability index for each choice. (Round answers to 2 decimal places, eg. 1.25)IRR FactorNew BackhoesWaterways should retain Old Backhoes equipment.Waterways shouldNew Backhoes1.90.2752Old BackhoesCalculate the internal rate of return factor for the new and old blackhoes. (Round answers to 5 decimal places, e.g. 5.27647.)Old BackhoesOld Backhoesretain Old Backhoes equipment.1.78 years0.58333,38(4) Comparing the internal rate of return for each choice to the required 8% discount rate.

Net present value is determined by deducting the initial investment from the current value of cash…

Payback Period Waterways should retain Old Backhoes Profitability Index New Backhoes Waterways should IRR Factor 3.58 years (3) Comparing the profitability index for each choice. (Round answers to 2 decimal places, e.g. 1.25) New Backhoes equipment. New Backhoes. retain Old Backhoes equipment. 1.9 0.2752 Old Backhoes Calculate the internal rate of return factor for the new and old blackhoes. (Round answers to 5 decimal places, e.g. 5.27647) Old Backhoes Old Backhoes Waterways should retain Old Backhoes equipment. 1.78 years 0.5833 3.38 (4) Comparing the internal rate of return for each choice to the required 8% discount rate.

Payback Period Waterways should retain Old Backhoes Profitability Index New Backhoes Waterways should IRR Factor 3.58 years (3) Comparing the profitability index for each choice. (Round answers to 2 decimal places, e.g. 1.25) New Backhoes equipment. New Backhoes. retain Old Backhoes equipment. 1.9 0.2752 Old Backhoes Calculate the internal rate of return factor for the new and old blackhoes. (Round answers to 5 decimal places, e.g. 5.27647) Old Backhoes Old Backhoes Waterways should retain Old Backhoes equipment. 1.78 years 0.5833 3.38 (4) Comparing the internal rate of return for each choice to the required 8% discount rate.

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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Waterways Continuing Problem 12 a Waterways puts much emphasis on cash flow when it plans for capital investments. The company chose its discount rate of 9% based on the rate of return it must pay its owners and creditors. Using that rate, Waterways then uses different methods to determine the best decisions for making capital outlays. This year Waterways is considering buying five new backhoes to replace the backhoes it now has. The new backhoes are faster, cost less to run, provide for more accurate trench digging, have comfort features for the operators, and have 1-year maintenance agreements to go with them. The old backhoes are working just fine, but they do require considerable maintenance. The backhoe operators are very familiar with the old backhoes and would need to learn some new skills to use the new backhoes. The following information is available to use in deciding whether to purchase the new backhoes. Old Backhoes New Backhoes Purchase cost when new $88,600 $197,129…
Consider two air-conditioning systems with the cash flow estimates as given below. Use AW analysis to determine the sensitivity of the economic decision to MARR values of 4%, 6%, and 8% per year. Air-Conditioning System 1 System First cost, $ AOC, $ per year Salvage value, $ New compressor and motor cost at midlife, $ Life, years -10,000 -500 -100 -1,850 8 The annual worth of air-conditioning system 1 when the MARR is 4% is $ The annual worth of air-conditioning system 2 when the MARR is 4% is $ The annual worth of air-conditioning system 1 when the MARR is 6% is $ The annual worth of air-conditioning system 2 when the MARR is 6% is $ The annual worth of air-conditioning system 1 when the MARR is 8% is $ The annual worth of air-conditioning system 2 when the MARR is 8% is $ Air-Conditioning System 2 -14,000 -85 -300 -2,540 12
Net Present Value Method, Internal Rate of Return Method, and Analysis for a Service Company The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: Biofuel Equipment Year 1 2 3 4 Year 1 2 The wind turbines require an investment of $513,900, while the biofuel equipment requires an investment of $1,093,320. No residual value is expected from either project. Present Value of an Annuity of $1 at Compound Interest 12% 0.893 1.690 2.402 3.037 3.605 3 4 5 Wind Turbines 6 7 8 9 10 Required: $180,000 180,000 180,000 180,000 6% 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 $360,000 360,000 360,000 360,000 5.759 6.145 4.111 4.564 4.968 5.328 5.650 15% 0.870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 20% 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 1a. Compute the net present value for each project. Use…
Two altemnative machines will produce the same product, but one is capable of higher-quality work, which can be expected to return greater revenue. The following are relevant data. Determine which is the better alternative, assuming repeatability and using SL depreciation, an income-tax rate of 25%, and an after-tax MARR of 10%. Capital investment Life Machine A $20,000 12 years $3,500 Calculate the AW value for the Machine A. AWA (10%) = $(Round to the nearest dollar.) Terminal BV (and MV) Annual receipts Annual expenses Click the icon to view the interest and annuity table for discrete compounding when the MARR is 10% per year. Machine B $34,000 9 years $2,000 $144,000 $142,000 $190,000 $163,000
The following two alternatives are given. Data A B. First Cost $8,200 $5,600 Annual Cost $1,000 $800 Annual Benefit $2,700 $2,100 Life, Years 7. Salvage Value $2,800 $1,000 Assume that MARR is 15%. Use the incremental rate of return analysis to determine which alternative (A or B) one should choose. Find the AIRR, or a range of AIRR. O 10% O 10-12% O 12-15% O > 15%
Q which project will be the best using (EAW). S Using the Benefit-Cost Ratio Method, Find what is the best alternative from the projects listed below if u know that (-10%) for both project. Details Initial investment (CU) Annual revenue (CU/year) Annual expense (CU/year) Project life (year) Investment due to replacement of some machines every 3 years. Salvage value (CU) Purchasing a new machine in the seventh year. 0 -113 000 Alternative 1 300 000 50 000 15 500 1 30 000 5 13 500 Q5:A person is planning a new business, the initial investment and cash flow pattern for a new business are shown below: Non Non 2 Year Cash flow (CU) The expected life of the project is five year.Find the rate of return for a new business. 30 000 3 30 000 Alternative 2 200 000 75 000 29 000 10 Non 4 30 000 22 000 13 000 5 30 000
Payback, Accounting Rate of Return, Net Present valde, Internal Rate of Retum Follow the format shown in Exhibit 12B.1 and Exhibit 12B.2 as you complete the requirements below. Woodard Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of tractors. The outlay required is $460,800. The NC equipment will last 5 years with no expected salvage value. The expected after-tax cash flows associated with the project follow: Year 1 2 3 4 5 Required: Cash Revenues $612,000 612,000 612,000 612,000 612,000 Cash Expenses $432,000 432,000 432,000 432,000 432,000 1. Compute the payback period for the NC equipment. Round your answer to two decimal places. 2.56 ✓ years Check My Work 2. Compute the NC equipment's ARR. Round the percentage to one decimal place. Assume straight-line depreciation. 19.1 ✓ % 3. Compute the investment's NPV, assuming required rate of return of 10%. Round present value calculations and your final answer…
A company is considering two alternatives with regards to equipment which it needs. The alternatives are as follows: Alternative A:PurchaseCost of Equipment 700,581Salvage Value 105,896Daily operating cost 534Economic life, years 10 Alternative B: Rental at 1,539 per day. At 18% interest, how many days per year must the equipment be in use if Alternative A is to be chosen.
Struggling to find the payback period and NPV. I believed pay period to be annual net income+depreciation, then divide that number into initial investment. Please if you can, show me what the right equation is? Thank you for the help in advance. Balloons By Sunset (BBS) is considering the purchase of two new hot air balloons so that it can expand its desert sunset tours. Various information about the proposed investment follows: (Future Value of $1, Present Value of $1. Future Value Annuity of $1. Present Value Annuity of $1.) Note: Use appropriate factor(s) from the tables provided. Initial investment (for two hot air balloons). Useful life Salvage value Annual net income generated BBS's cost of capital Assume straight line depreciation method is used. Required: Help BBS evaluate this project by calculating each of the following: 1. Accounting rate of return. Note: Round your answer to 2 decimal places. $ 536,000 Answer is not complete. 1. Accounting rate of return 2. Payback period…
A firm is considering three mutually exclusive alternatives as part of an upgrade to an existing transportation network. If the MARR is 10% per year, which alternative (if any) should be chosen using the IRR analysis procedure? Use trial & error and show your calculations. A B Initial Cost Annual Revenue Annual Cost Salvage Value Useful Life 40,000 10,400 4,000 3,000 30,000 8,560 3,000 2,500 20,000 7,750 2,500 2,000 20 20 10
Two alternative machines will produce the same product, but one is capable of higher-quality work, which can be expected to return greater revenue. The following are relevant data. Determine which is the better alternative, assuming repeatability and using SL depreciation, an income-tax rate of 27%, and an after-tax MARR of 11%. Capital investment Life Calculate the AW value for the Machine A. Machine A $23,000 12 years $4,000 Terminal BV (and MV) Annual receipts Annual expenses Click the icon to view the interest and annuity table for discrete compounding when the MARR is 11%er year. AWA (11%) = $ (Round to the nearest dollar.) Machine B $33,000 6 years $1,500 $197,000 $176,000 $152,000 $130,000
Saved Required information [The following information applies to the questions displayed below.] Peng Company is considering an investment expected to generate an average net income after taxes of $2,900 for three years. The investment costs $47,100 and has an estimated $6,600 salvage value. Compute the accounting rate of return for this investment; assume the company uses straight-line depreciation. Accounting Rate of Return Choose Denominator: Accounting Rate of Return %3D Choose Numerator: Accounting rate of return

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