FUND.ACCT.PRIN.
25th Edition
ISBN: 9781260247985
Author: Wild
Publisher: RENT MCG
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Chapter 26, Problem 19QS
To determine
Concept Introduction:
The net present value for the investment.
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Kate's Candy Corporation makes chewy chocolate candies at a plant in Winston-Salem, North Carolina. Steve Bishop,
the production manager at this facility, installed a packaging machine last year at a cost of $600,000. This machine is
expected to last for 10 more years with no residual value. Operating costs for the projected levels of production, before
depreciation, are $120,000 annually.
Steve has just learned of a new packaging machine that would work much more efficiently in the production line. This
machine would cost $696,000 installed, but the annual operating costs would be only $48,000 before depreciation.
This machine would be depreciated over 10 years with no residual value. He could sell the current packaging machine
this year for $300,000.
Steve has worked for Kate's Candy for 7 years. He plans to remain with the firm for about 2 more years, when he
expects to become a vice president…
Consider the following project:
Net cash flow
0
-215
1
Change in value (economic depreciation)
Expected economic income
0
Period
2
90.55
3
246.40
The internal rate of return is 18%. The NPV, assuming a 18% opportunity cost of capital, is exactly zero. Calculate the expected
economic income and economic depreciation in each year. (Negative answers should be indicated by a minus sign. Do not round
intermediate calculations. Round your answers to 2 decimal places.)
Period
2
3
Question
Alternative A: To buy Machine Audi which is similar to the existing machineAlternative B: Go in for Machine Benz which is more expensive and has much greater capacityThe cash flows at the present level of operations under the two alternatives are as follows:Year Machine Audi Machine Benz0 (30500) (32000)1 - 145002 9000 145003 19000. 145004 16000 145005 14000 14500The company estimates that its cost of capital is 11%. At the end of year 5, Machine Audi will have a scrap value of $2500 which is not included in the table above. Machine Benz will not have any residual value
(d) Calculate the Profitability Index for Machine Audi.
(e) Calculate the Internal Rate of Return for both machines (Use interpolation toarrive at your final answer.)
(f) Write a brief report to the management to determine whether Albert Trading should buy any machine.
Chapter 26 Solutions
FUND.ACCT.PRIN.
Ch. 26 - Prob. 1QSCh. 26 - Prob. 2QSCh. 26 - Prob. 3QSCh. 26 - Prob. 4QSCh. 26 - Prob. 5QSCh. 26 - Prob. 6QSCh. 26 - Prob. 7QSCh. 26 - Prob. 8QSCh. 26 - Prob. 9QSCh. 26 - Prob. 10QS
Ch. 26 - Prob. 11QSCh. 26 - Prob. 12QSCh. 26 - Prob. 13QSCh. 26 - Prob. 14QSCh. 26 - Prob. 15QSCh. 26 - Prob. 16QSCh. 26 - Prob. 17QSCh. 26 - Prob. 18QSCh. 26 - Prob. 19QSCh. 26 - Prob. 20QSCh. 26 - Prob. 21QSCh. 26 - Prob. 22QSCh. 26 - Prob. 23QSCh. 26 - Prob. 24QSCh. 26 - Prob. 1ECh. 26 - Prob. 2ECh. 26 - Prob. 3ECh. 26 - Prob. 4ECh. 26 - Prob. 5ECh. 26 - Prob. 6ECh. 26 - Prob. 7ECh. 26 - Prob. 8ECh. 26 - Prob. 9ECh. 26 - Prob. 10ECh. 26 - Prob. 11ECh. 26 - Prob. 12ECh. 26 - Prob. 13ECh. 26 - Prob. 14ECh. 26 - Prob. 15ECh. 26 - Prob. 16ECh. 26 - Prob. 17ECh. 26 - Prob. 18ECh. 26 - Prob. 19ECh. 26 - Prob. 20ECh. 26 - Prob. 21ECh. 26 - Prob. 22ECh. 26 - Prob. 23ECh. 26 - Prob. 1PSACh. 26 - Prob. 2PSACh. 26 - Prob. 3PSACh. 26 - Prob. 4PSACh. 26 - Prob. 5PSACh. 26 - Prob. 6PSACh. 26 - Prob. 1PSBCh. 26 - Prob. 2PSBCh. 26 - Prob. 3PSBCh. 26 - Prob. 4PSBCh. 26 - Prob. 5PSBCh. 26 - Prob. 6PSBCh. 26 - Prob. 26SPCh. 26 - Prob. 1AACh. 26 - Prob. 2AACh. 26 - Prob. 3AACh. 26 - Prob. 1DQCh. 26 - Prob. 2DQCh. 26 - Prob. 3DQCh. 26 - Prob. 4DQCh. 26 - Prob. 5DQCh. 26 - Prob. 6DQCh. 26 - Prob. 7DQCh. 26 - Prob. 8DQCh. 26 - Prob. 9DQCh. 26 - Google managers must select depredation methods....Ch. 26 - Prob. 11DQCh. 26 - Prob. 12DQCh. 26 - Prob. 13DQCh. 26 - Prob. 1BTNCh. 26 - Prob. 2BTNCh. 26 - Prob. 3BTNCh. 26 - Prob. 4BTN
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