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Universal Electronics is considering the purchase of manufacturing equipment with a 10-year midpoint in its asset
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- Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return In Excel, see Appendix C.arrow_forwardMason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?arrow_forwardFalkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?arrow_forward
- A start-up biotech company is considering making an investment of $100,000 in a new filtration system. The associated estimates are summarized as shown below: Straight-line depreciation will be used, and the effective income tax rate is 20%. The after-tax MARR is 15% per year. Determine whether this investment is an attractive option for the company.arrow_forwardJohnny Dear Inc. is examining the possibility of purchasing harvesting machinery for $147,500 that is expected to be sold at the end of 10 years for $500. The machinery will generate benefits of $24,550 per year and will have maintenance costs of $3,203 per year. Johnny Dear Inc. will use an interest rate of 7% and a straight-line depreciation method. Due to the next tax code the company has a flat tax rate of 21%. Calculate the project's after-tax benefit cost ratio. Remember to use two decimal pointsarrow_forwardLarson is considering the purchase of manufacturing equipment categorized under the 5-year MACRS scale. The asset will cost $260,000, producing earnings before depreciation and taxes of $92,000 per year for three years and then $41,000 per year for the remaining years. Larson has a tax rate of 19 percent. Assume the cost of capital is 10 percent. What is the anticipated Payback period, Net present value, Internal rate of return, and Profitability index for this equipment? Should this equipment be purchased (please, explain)?arrow_forward
- A company is considering the purchase of a new machine for $68,000. Management predicts that the machine can produce sales of $19,000 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 $6,000 per year. Income tax expense is $4,800 per year based on a tax rate of 40%. What is the payback period for the new machine? Multiple Choice 22.67 years. 8.50 years. 3.58 years. 5.15 years. 11.33 years.arrow_forwarda company is considering the purchase of a new machine for 480,000. Management predicts that the machine can produce sales of 180,000 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling 120,000 per year including depreciation of 30,000 per year. The company's tax rate is 40%. What is the payback period for the new machine?arrow_forwardThe Bread Company is planning to purchase a new machine that it will depreciate on straight-line basis over a ten year period. A full year's depreciation will be taken in the year of acquisition. The machine is expected to produce cash flow, net of income taxes, of P30,000 in each of the ten years. The accounting (book value) rate of return is expected-to be 10% on the initial increase in required investment. The cost of the new machine will bearrow_forward
- A corporation is considering purchasing a machine that will save $150,000 per year before taxes. The cost of operating the machine (including maintenance) is $30,000 per year. The machine will be needed for five years, after which it will have azero salvage value. MACRS depreciation will be used, assuming a three-year class life. The marginalincome tax rate is 40%. If the firm wants 15% return on investment after taxes, how much can it afford topay for this machine? [use closes approximate value]arrow_forwardYour firm requires an average accounting return (AAR) of at least 15 percent on all fixed asset purchases. Currently, you are considering some new equipment costing $96,000. This equipment will have a 3-year life over which time it will be depreciated on a straight line basis to a zero book value. The annual net income from this project is estimated at $5,500, $12,400, and $17,600 for the 3 years. Should you accept this project based on the accounting rate of return? Why or why not? a. no; because the AAR is equal to 15 percent b. yes; because the AAR is less than 15 percent c. yes; because the AAR is greater than 15 percent d. yes; because the AAR 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.arrow_forwardWilson Corp, is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $50,000. The equipment will have an initial cost of $600,000 and have an 8-year life. The salvage value of the equipment is estimated to be $100,000. If the hurdle rate is 10%, what is the approximate net present value? (Future Value of $1. Present Value of $1. Future Value Annuity of $1. Present Value Annuity of $1.) (Use appropriate factor from the PV tables. Round your final answer to the nearest dollar amount.) Multiple Choice $500,000 $46,826 $100,000 Less than zeroarrow_forward
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