Talmage Inc. has just completed development of a new printer. The new product is expected to produce annual revenues of $2,700,000. Producing the printer requires an investment in new equipment costing $2,880,000. The printer has a projected life cycle of 5 years. After 5 years, the equipment can be sold for $360,000.
Required:
Prepare a schedule of the projected annual
Calculate the NPV using only discount factors from Exhibit 12B.1 (p. 670).
Calculate the NPV using discount factors from both Exhibits 12B.1 and 12B.2 (p. 671).
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Chapter 12 Solutions
Managerial Accounting: The Cornerstone of Business Decision-Making
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- Conestoga Plumbing plans to invest in a new pump that is anticipated to provide annual savings for 10 years of $50,000. The pump can be sold at the end of the period for $100,000. What is the present value of the investment in the pump at a 9% interest rate given that savings are realized at year end?arrow_forwardThe Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of 170,000. The project will produce 1,000 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be 138 per case, and the Year-1 cost per case will be 105. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 6% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. a. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? b. Suppose that the company had forgotten to include future inflation. What would they have incorrectly calculated as the projects NPV?arrow_forwardIf a copy center is considering the purchase of a new copy machine with an initial investment cost of $150,000 and the center expects an annual net cash flow of $20,000 per year, what is the payback period?arrow_forward
- Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the following cash flows over the next five years: $99,000, $88,000, $92,000. $87,000, and $72,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel. see Appendix C.arrow_forwardA company is considering the purchase of a new machine for $58,000. Management predicts that the machine can produce sales of $17,000 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $7,000 per year including depreciation of $5,000 per year. The company's tax rate is 40%. What is the payback period for the new machine? a. 3.41 years. b. 6.44 years. c. 5.27 years. d. 11.60 years. e. 32.22 years. Carmel Corporation is considering the purchase of a machine costing $54,000 with a 7-year useful life and no salvage value. Carmel uses straight-line depreciation and assumes that the annual cash inflow from the machine will be received uniformly throughout each year. In calculating the accounting rate of return, what is Carmel's average investment? a. $27,000. b. $30,857. c. $54,000. d. $8,816. e. $7,714.arrow_forwardA company is considering the introduction of a new product line. The initial investmentrequired for this project is $620,000, and annual maintenance costs are anticipated to be$53,400. Annual operating costs will be $10.5 per unit, and each unit of product can be soldfor $76. If the MARR is 10% and the project has a life of 6 years.What is the minimum annual production level for which the project is economicallyviablearrow_forward
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