Excel Applications for Accounting Principles
4th Edition
ISBN: 9781111581565
Author: Gaylord N. Smith
Publisher: Cengage Learning
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Aerotron Electronics is considering purchasing a water filtration system to assist in circuit board manufacturing. The system costs $40,000. It has an expected life of 7 years at which time its salvage value will be $7,500. Operating and maintenance expenses are estimated to be $2,000 per year. If the filtration system is not purchased, Aerotron Electronics will have to pay Bay City $12,000 per year for water purification. If the system is purchased, no water purification from Bay City will be needed. Aerotron Electronics must borrow half of the purchase price, but they cannot start repaying the loan for 2 years. The bank has agreed to three equal annual payments, with the first payment due at the end of year 2. The loan interest rate is 8% compounded annually. Aerotron Electronics’ MARR is 10% compounded annually. a. What is the present worth of this investment? b. What is the decision rule for judging the attractiveness of investmentsbased on present worth? c. Should Aerotron…
Iqra University is considering investing in an online book ordering and information service, which will be managed by 2 employees. The following estimates relate to the costs of starting the service and the subsequent revenues from it.
The initial investment needed to start the service, including the installation of additional phone lines and computer equipment, will be $1,000,000. These investments are expected to have a life of 4 years with 0 salvage value.The investments will be depreciated straight line over the four-year life.The revenues in the first year are expected to be $1500,000, growing 20% in year 2, and 10% in the two years following.The salaries and other benefits for the employees are estimated to be $150,000 in year 1, and grow 10% a year for the following three years.The cost of the books is assumed to be “0.60” of the revenues in each of the four years.The non-cash working capital, which includes the inventory of books needed for the service and the accounts…
You must evaluate the purchase of a proposed
Spectrometer for R&D department. The purchase.
Price of the spectrometer including modifications
is $200,000, and the equipment will be
depreciated at the time of purchase. The
equipment would be sold after 3 years for
$51,000. The equipment would require a $15,000
increase in net operating working capital
(spare parts inventory). The project would have
no effect on revenues, but it should save
firm $49,000 per year in before-tax laber casts.
The firm's marginal fecteral-plus-state tarrate is 25%
a) What is the initial investment outlay for the
Spectrumeter after bonus depreciation is considered,
that is the Year 0 project cash flow?
the
Enter
your answer as a
a positive value. Rand
answer to the nearest dollar.
$
b.) What are the project's annual cash flows in Years
Round
1, 2, and 3? Do not round intermediate calculations.
your answers to the nearest dollar.
Year 1: 9
Year 2: $
Year 3: $
10 4
your
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