Whispering Winds Industries is considering the purchase of new equipment costing $1,500,000 to replace existing equipment that will be sold for $120,000. The new equipment is expected to have a $230,000 salvage value at the end of its 5-year life. During the period of its use, the equipment will allow the company to produce and sell an additional 25,000 units annually at a sales price of $37 per unit. Those units will have a variable cost of $22 per unit. The company will also incur an additional $90,000 in annual fixed costs. Click here to view the factor table. (a) Calculate the net present value of the proposed equipment purchase. Assume that Whispering Winds uses a 10% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971. Enter negative amount using a negative sign preceding the number e.g. -59,992 or parentheses e.g. (59,992).) Net present value $ (b) Do you recommend that Whispering Winds Industries invest in the new equipment?
Whispering Winds Industries is considering the purchase of new equipment costing $1,500,000 to replace existing equipment that will be sold for $120,000. The new equipment is expected to have a $230,000 salvage value at the end of its 5-year life. During the period of its use, the equipment will allow the company to produce and sell an additional 25,000 units annually at a sales price of $37 per unit. Those units will have a variable cost of $22 per unit. The company will also incur an additional $90,000 in annual fixed costs. Click here to view the factor table. (a) Calculate the net present value of the proposed equipment purchase. Assume that Whispering Winds uses a 10% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971. Enter negative amount using a negative sign preceding the number e.g. -59,992 or parentheses e.g. (59,992).) Net present value $ (b) Do you recommend that Whispering Winds Industries invest in the new equipment?
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 11P: REPLACEMENT ANALYSIS St. Johns River Shipyards is considering the replacement of an 8-year-old...
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At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
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The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
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Chapter 9 Question 4
Please answer parts a and b with an explanation of how you got the answer.
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Whispering Winds Industries is considering the purchase of new equipment costing $1,500,000 to replace existing equipment that
will be sold for $120,000. The new equipment is expected to have a $230,000 salvage value at the end of its 5-year life. During the
period of its use, the equipment will allow the company to produce and sell an additional 25,000 units annually at a sales price of $37
per unit. Those units will have a variable cost of $22 per unit. The company will also incur an additional $90,000 in annual fixed costs.
Click here to view the factor table.
(a) Calculate the net present value of the proposed equipment purchase. Assume that Whispering Winds uses a 10% discount rate.
(For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to O decimal place, eg.
58,971. Enter negative amount using a negative sign preceding the number eg. -59,992 or parentheses e.g. (59,992).)
Net present value
$
(b) Do you recommend that Whispering Winds Industries invest in the new equipment?
Transcribed Image Text:APPENDIX 9.1 Present value of $1 received in n periods.
Periods
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
16%
18%
20%
1
0.9615
0.9524
0.9434 0.9346 0.9259 0.9174
0.9091 0.9009 0.8929 0.8850
0.8772
0.8621 0.8475
0.8333
0.9246
0.9070
0.8900
0.8734
0.8573 0.8417
0.8264 0.8116 0.7972 0.7831
0.7695
0.7432 0.7182
0.6944
3
0.8890
0.8638
0.8396
0.8163
0.7938
0.7722
0.7513 0.7312 0.7118 0.6931
0.6750
0.6407
0.6086
0.5787
4
0.8548
0.8227
0.7921
0.7629 0.7350
0.7084
0.6830 0.6587 0.6355 0.6133
0.5921
0.5523
0.5158 0.4823
0.8219
0.7835
0.7473 0.7130 0.6806 0.6499
0.6209 0.5935 0.5674
0.5428
0.5194
0.4761 0.4371
0.4019
6.
0.7903
0.7462
0.7050
0.6663
0.6302
0.5963
0.5645
0.5346
0.5066
0.4803
0.4556
0.4104
0.3704
0.3349
7
0.7599
0.7107
0.6651
0.6227
0.5835
0.5470
0.5132
0.4817
0.4523
0.4251
0.3996
0.3538
0.3139
0.2791
0.7307
0.6768
0.6274
0.5820
0.5403
0.5019 0.4665
0.4339
0.4039
0.3762
0.3506
0.3050
0.2660
0.2326
0.7026
0.6446
0.5919
0.5439
0.5002
0.4604
0.4241
0.3909
0.3606
0.3329
0.3075
0.2630
0.2255
0.1938
10
0.6756
0.6139
0.5584
0.5083
0.4632
0.4224
0.3855
0.3522
0.3220
0.2946
0.2697
0.2267
0.1911
0.1615
11
0.6496
0.5847
0.5268
0.4751
0.4289
0.3875 0.3505 0.3173 0.2875
0.2607
0.2366
0.1954
0.1619
0.1346
12
0.6246
0.5568
0.4970
0.4440
0.3971
0.3555 0.3186 0.2858 0.2567
0.2307
0.2076 0.1685 0.1372 0.1122
13
0.6006
0.5303
0.4688
0.4150
0.3677
0.3262 0.2897 0.2575 0.2292 0.2042
0.1821
0.1452 0.1163
0.0935
14
0.5775
0.5051
0.4423
0.3878
0.3405
0.2992
0.2633
0.2320
0.2046
0.1807
0.1597 0.1252
0.0985
0.0779
15
0.5553
0.4810
0.4173
0.3624 0.3152
0.2745 0.2394
0.2090
0.1827
0.1599
0.1401
0.1079 0.0835 0.0649
16
0.5339
0.4581
0.3936
0.3387
0.2919
0.2519 0.2176
0.1883
0.1631
0.1415
0.1229 0.0930 0.0708 0.0541
17
0.5134
0.4363
0.3714
0.3166
0.2703
0.2311 0.1978
0.1696
0.1456 0.1252 0.1078 0.0802 0.0600
0.0451
18
0.4936
0.4155
0.3503
0.2959
0.2502
0.2120 0.1799
0.1528
0.1300
0.1108
0.0946
0.0691
0.0508
0.0376
19
0.4746
0.3957
0.3305
0.2765 0.2317
0.1945 0.1635 0.1377
0.1161
0.0981
0.0829 0.0596 0.0431 0.0313
20
0.4564
0.3769
0.3118
0.2584
0.2145
0.1784 0.1486
0.1240
0.1037
0.0868
0.0728
0.0514
0.0365
0.0261
$1
PVn.
(1+ i)"
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