Your firm spends $469,000 per year in regular maintenance of its equipment. Due to the economic downturn, the firmconsiders forgoing these maintenance expenses for the next 3 years. If it does so, it expects it will need to spend $2.2million in year 4 replacing failed equipment.a. What is the IRR of the decision to forgo maintenance of the equipment?b. Does the IRR rule work for this decision?c. For what costs of capital (COC) is forgoing maintenance a good decision?a. What is the IRR of the decision to forgo maintenance of the equipment?The IRR of the decision is ☐ %. (Round to two decimal places.)

IRR refers to the internal rate of return at which the net present value is zero. It is the…

Answered: Your firm spends $469,000 per year in…

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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(Ignore income taxes in this problem.) Your Company has a telephone system that is in poor condition. The system must be either overhauled or replaced with a new system. The following data have been gathered concerning these two alternatives: Present System Proposed New System Purchase cost when new $100,000 $110,000 Accumulated depreciation, 90,000 Overhaul cost needed now 80,000 Working capital required 50,000 Annual cash operating costs 30,000 20,000 Salvage value now of old system 10,000 Salvage value in 8 years 2,000 15,000 Your Company uses a 12% discount rate and the total cost approach to capital budgeting analysis. Both alternatives are expected to have a useful life of eight years. What is the net present value of the new system alternative? Enter your answer without dollar signs. If the NPV is negative enter with a minus sign in front.
Vijay
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A factory has a flooding probability of 1% per year. When flooded, the factory will suffer 500,000 EUR in material damages. The existing insurance will certainly cover the material damages, a deductible of 20% will however apply. When flooded the factory will suffer another 500,000 EUR in opportunity cost of lost production time, which are not covered by insurance. A local plumbing firm has made an offer of installing a pump that would avoid this flooding and costs 5,000 EUR per year. Your boss asks you if this is a good idea? (assuming no recovery rate). a) Calculate Expected Loss p.a
A company plans to buy $ 11300 worth of metering devices. The machine, which has an economic life of 12 years and will not be used afterwards, should be put into maintenance at the end of a period of 2 years in order to be able to make good measurements. First maintenance cost $ 500 And each maintenance cost is twice the previous maintenance cost. There is no scrap value at the end of the machine's economic life. The company gains varying amounts every year due to the purchase of this machine. For the first three years, the earnings are $ 1000 each year. Annual earnings for each subsequent 3-year period increase by $ 1000 over the previous 3-year period. a) Draw the cash flow diagram and find the IIR value. b) If you managed the company, would you buy this machine when the MARR was 5% and explain why.
On January 1, 2021, X Company bought a machine for $44,000. It's now January 1, 2022, and management is disappointed that 2021 operating costs with the machine were $32,000. Since they are expecting future operating costs to continue to be $32,000 a year, they are considering replacing the machine with a new one. Although the new machine will cost $47,000, operating costs with the new machine will decrease by $8,000 each year. Both machines will last for 4 more years. The current machine can be sold immediately for $8,000 but will have no salvage value at the end of 4 years. The new machine will have a salvage value of $4,000 at the end of 4 years. Assuming a discount rate of 8%, what is the net present value of replacing the current machine with the new one? Submit Answer Tries 0/4
Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Your firm spends $403,000 per year in regular maintenance of its equipment. Due to the economic downturn, the firm considers forgoing these maintenance expenses for the next 3 years. If it does so, it expects it will need to spend $2.1 million in year 4 replacing failed equipment. a. What is the IRR of the decision to forgo maintenance of the equipment? b. Does the IRR rule work for this decision? c. For what costs of capital (COC) is forgoing maintenance a good decision? a. What is the IRR of the decision to forgo maintenance of the equipment? The IRR of the decision is%. (Round to two decimal places.)
note: can you help me answer the question for s, t and u? Lee Wah Press (LWP) is considering a leasing arrangement to finance some special printing machines that it needs for production during the next three years. A planned change in the company’s production technology will make the new machine obsolete after 3 years. LWP will depreciate the new machine on a straight-line basis towards zero salvage value. The firm can borrow the installed cost of $480,000, at 10% interest per annum, calculated on an annual reducing balance, to buy the new machine or make three equal beginning-of-year lease payments of $210,000 should it decide to take up lease financing. Annual maintenance costs associated with ownership, payable at the end of year, are estimated at $25,000. Annual insurance premium associated with the purchase is estimated to be at $6,000, payment is on a cash-before-cover basis. Should LWP opt for lease financing, all other costs will be borne by the lessor. LWP tax rate is 40%.…
(Ignore income taxes in this problem.) Your Company purchased a van to use in orders directly to customers. The auto was purchased for $28,000 and will have a 6-year useful life and a $7,000 salvage value. Delivering fees should increase gross revenues by at least $6,350 per year. Depreciation on the van will be $3,500 per year. In what year will the payback for the van occur? please solve and show work.
A company wants to determine the optimal replacement policy for its equipment. New equipment costs $10,000. The company does not keep their equipment longer than 2 years and has estimated the annual operating costs and trade-in values for equipment during each of the 2 years as: Age in years 0 to 1 1 to 2 Operating Cost $5,000 $7,000 Trade-in Value $8,000 $6,000 What is the net replacement cost at year 3 if the company used the equipment for two years from year 1? c. $11,000 d. $9,000 a. $16,000 b. $14,000

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