The management of Stillford Micro Brew is considering the purchase of an automated bottling machine for $80,000. The machine would replace an old piece of equipment that costs $33,000 per year to operate. The new machine would cost $10,000 per year to operate. The old machine currently in use could be sold now for a scrap value of $5,000. The new machine would have a useful life of 10 years with no salvage value. Required: Compute the simple rate of return on the new automated bottling machine.

The management of Stillford Micro Brew is considering the purchase of an automated bottling machine for $80,000. The machine would replace an old piece of equipment that costs $33,000 per year to operate. The new machine would cost $10,000 per year to operate. The old machine currently in use could be sold now for a scrap value of $5,000. The new machine would have a useful life of 10 years with no salvage value. Required: Compute the simple rate of return on the new automated bottling machine.

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter12: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 10P: Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6...

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Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer’s base price is $1,080,000, and it would cost another $22,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $605,000. The MACRS rates for the first 3 years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $15,500. The sprayer would not change revenues, but it is expected to save the firm $380,000 per year in before-tax operating costs, mainly labor. Campbell’s marginal tax rate is 35%. What is the Year-0 cash flow? What are the net operating cash flows in Years 1, 2, and 3? What is the additional Year-3 cash flow (i.e., the after-tax salvage and the return of working capital)? If the project’s cost of capital is 12%, should the machine be purchased?
Simple Rate of Return Method The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $120,000. The machine would replace an old piece of equipment that costs $30,000 per year to operate. The new machine would cost $12,000 per year to operate. The old machine currently in use could be sold now for a salvage value of $40,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine?
NEED ASAP!!! OWN SOLUTION NOT FROM OTHER SITES. THANKS The management of KC Company is considering the purchase of a $27.000 machine that would reduce operating costs by $7,000 per year. At the end of the machine's five-year useful life, it will have zero scrap value. The company's required rate of return is 12%. Determine the net present value of the investment in the machine. look for the attachment CHOICES: a) 30,917.8 b) 30,458.65 c) 29,352.6
Exercise 1 (Simple Rate of Return Method) The management of Ann Gee MicroBrew is considering the purchase of an automated bottling machine for P80,000. The machine would replace an old niece of equipment that costs P33,000 per year to operate. The new machine would cost P10,000 per year to operate. The old machine currently in use could be sold now for a scrap value of P5,000. The new machine would have a useful life of 10 years with no salvage value. Required: Compute the simple rate of return on the new automated bottling machine.
Replacement project example: Suppose Mayco wants to replace an existing printer with a new high-speed copier. The existing printer was purchased 13 years ago at a cost of $16,000. The printer is being depreciated using straight line basis assuming a useful life of 18 years and no salvage value. If the existing printer is not replaced, it will have zero market value at the end of its useful life. The new high-speed copier can be purchased for $23,000 (including freight and installation). Over its 5-year life, it will reduce labor and raw materials usage sufficiently to cut annual operating costs from $18,000 to $9,000. This reduction in costs will cause before-tax profits to rise by an equal amount. It is estimated that the new copier can be sold for $2,400 at the end of five years; this is its estimated salvage value. The old printer's current market value is $4,576. If the new copier is acquired, the old printer will be sold to another company. The company's marginal…
Replacement project example: Suppose Mayco wants to replace an existing printer with a new high-speed copier. The existing printer was purchased 13 years ago at a cost of $16,000. The printer is being depreciated using straight line basis assuming a useful life of 18 years and no salvage value. If the existing printer is not replaced, it will have zero market value at the end of its useful life. The new high-speed copier can be purchased for $23,000 (including freight and installation). Over its 5-year life, it will reduce labor and raw materials usage sufficiently to cut annual operating costs from $18,000 to $9,000. This reduction in costs will cause before-tax profits to rise by an equal amount. It is estimated that the new copier can be sold for $2,400 at the end of five years; this is its estimated salvage value. The old printer's current market value is $4,576. If the new copier is acquired, the old printer will be sold to another company. The company's marginal…
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The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $69,000. The machine would replace an old piece of equipment that costs $17,000 per year to operate. The new machine would cost $7,000 per year to operate. The old machine currently in use could be sold now for a salvage value of $23,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.) 1. Depreciation expense 2. Incremental net operating income 3 Initial…
Exercise 1 (Simple Rate of Return Method) The management of Ann Gee MicroBrew is considering the purchase of an automated bottling machine for P80,000. The machine would replace an old piece of equipment that costs P33,000 per year to operate. The new machine would cost P10,000 per year to operate. The old machine currently in use could be sold now for a scrap value of P5,000. The new machine would have a useful life of 10 years with no salvage value. Required: Compute the simple rate of return on the new automated bottling machine.
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