Tulsa Company is considering investing in new bottling equipment and has two options: Option A has a lower initial cost but would require a significant expenditure to rebuild the machine after four years; Option B has higher maintenance costs, but also has a higher salvage value at the end of its useful life. Tulsa's cost of capital is 11 percent. The following estimates of the cash flows were developed by Tulsa's controller: Initial investment Annual cash inflows Annual cash outflows Costs to rebuild Salvage value Estimated useful life Option A $ 320,000 150,000 70,000 120,000 Option B $ 454,000 160,000 75,000 24,000 8 years 8 years Required: Calculate NPV. (Future Value of $1, Present Value of $1. Future Value Annuity of $1. Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your "Present Values" to the nearest whole dollar amount.) Option A Year Cash Flows PV factor Present Value 11% Initial Investment Annual Cash Flows 1-8 Cost to Rebuild 4 Salvage 8. Net Present Value Option B Year Cash Flows PV factor Present Value 11% Initial Investment < Prev 8 of 9 Next > ...
Tulsa Company is considering investing in new bottling equipment and has two options: Option A has a lower initial cost but would require a significant expenditure to rebuild the machine after four years; Option B has higher maintenance costs, but also has a higher salvage value at the end of its useful life. Tulsa's cost of capital is 11 percent. The following estimates of the cash flows were developed by Tulsa's controller: Initial investment Annual cash inflows Annual cash outflows Costs to rebuild Salvage value Estimated useful life Option A $ 320,000 150,000 70,000 120,000 Option B $ 454,000 160,000 75,000 24,000 8 years 8 years Required: Calculate NPV. (Future Value of $1, Present Value of $1. Future Value Annuity of $1. Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your "Present Values" to the nearest whole dollar amount.) Option A Year Cash Flows PV factor Present Value 11% Initial Investment Annual Cash Flows 1-8 Cost to Rebuild 4 Salvage 8. Net Present Value Option B Year Cash Flows PV factor Present Value 11% Initial Investment < Prev 8 of 9 Next > ...
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 1MAD: San Lucas Corporation is considering investment in robotic machinery based upon the following...
Related questions
Question
Complete and answer the required question
Transcribed Image Text:Tulsa Company is considering investing in new bottling equipment and has two options: Option A has a lower initial cost but would
require a significant expenditure to rebuild the machine after four years; Option B has higher maintenance costs, but also has a higher
salvage value at the end of its useful life. Tulsa's cost of capital is 11 percent. The following estimates of the cash flows were developed
by Tulsa's controller:
Initial investment
Annual cash inflows
Annual cash outflows
Costs to rebuild
Salvage value
Estimated useful life
Option A
$ 320,000
150,000
70,000
120,000
Option B
$ 454,000
160,000
75,000
24,000
8 years
8 years
Required:
Calculate NPV. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate
factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your "Present Values" to the
nearest whole dollar amount.)
Option A
Year
Cash Flows
PV factor
Present Value
11%
Initial Investment
Annual Cash Flows
1-8
Cost to Rebuild
4
Salvage
Net Present Value
Option B
Year
Cash Flows
PV factor
Present Value
11%
Initial Investment
( Prey
8 of 9
Next >
nere to search
1O
12
13
@
8.
2
3
4.
Q
W
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College