. Fancy Foods is considering replacing all 12 of its meat scales with new, digital ones. The old scales are fully depreciated and have no disposal value. The new scales cost $120,000 (in total). Because the new scales are more efficient and more accurate than the old scales, Fancy Foods will have annual incremental cash savings from using the new scales in the amount of $30,000 per year. The scales have a 6-year useful life and no terminal disposal value and are depreciated using the straight-line method. Fancy Foods requires a 6% real rate of return. Q. Given the preceding information, what is the net present value of the new scales? Ignore taxes.

. Fancy Foods is considering replacing all 12 of its meat scales with new, digital ones. The old scales are fully depreciated and have no disposal value. The new scales cost $120,000 (in total). Because the new scales are more efficient and more accurate than the old scales, Fancy Foods will have annual incremental cash savings from using the new scales in the amount of $30,000 per year. The scales have a 6-year useful life and no terminal disposal value and are depreciated using the straight-line method. Fancy Foods requires a 6% real rate of return. Q. Given the preceding information, what is the net present value of the new scales? Ignore taxes.

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 4P: Although the Chen Company’s milling machine is old, it is still in relatively good working order and...

See similar textbooks

Similar questions

Although the Chen Company’s milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $110,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $19,000 per year. It would have zero salvage value at the end of its life. The project cost of capital is 10%, and its marginal tax rate is 25%. Should Chen buy the new machine?
. Fancy Foods is considering replacing all 12 of its meat scales with new, digital ones. The old scales are fully depreciated and have no disposal value. The new scales cost $120,000 (in total). Because the new scales are more efficient and more accurate than the old scales, Fancy Foods will have annual incremental cash savings from using the new scales in the amount of $30,000 per year. The scales have a 6-year useful life and no terminal disposal value and are depreciated using the straight-line method. Fancy Foods requires a 6% real rate of return. Q. Now assume that the company’s tax rate is 25%. Calculate the NPV of the project assuming no inflation.
. Fancy Foods is considering replacing all 12 of its meat scales with new, digital ones. The old scales are fully depreciated and have no disposal value. The new scales cost $120,000 (in total). Because the new scales are more efficient and more accurate than the old scales, Fancy Foods will have annual incremental cash savings from using the new scales in the amount of $30,000 per year. The scales have a 6-year useful life and no terminal disposal value and are depreciated using the straight-line method. Fancy Foods requires a 6% real rate of return. Q. Again assuming that the company faces a 25% tax rate, calculate the NPV of the project under an inflation rate of 4%.
. Fancy Foods is considering replacing all 12 of its meat scales with new, digital ones. The old scales are fully depreciated and have no disposal value. The new scales cost $120,000 (in total). Because the new scales are more efficient and more accurate than the old scales, Fancy Foods will have annual incremental cash savings from using the new scales in the amount of $30,000 per year. The scales have a 6-year useful life and no terminal disposal value and are depreciated using the straight-line method. Fancy Foods requires a 6% real rate of return. Q. Assume the $30,000 cost savings are in current real dollars and the inflation rate is 4%. Recalculate the NPV of the project.
Angelus Press is considering replacing all of its old cash registers with new ones. The old registers are fully depreciated and have no disposal value and will be sold for $ $50,000. The new registers cost $ 680,000. Because the new registers are more efficient than the old registers, Angelus Press will have annual cost savings from using the new registers in the amount of $140,000, for the first four years and then $ 100,000 for the remaining two years. The registers have a 6-year useful ife, and are depreciated using the straight line method with no disposal value. Angelus Press require a 12% real rate of return. Ignore income taxes Required: Calculate the Net present value and based on your answer state if project should a) be accepted Calculate the Payback period and based on your answer state if project should b) be accepted Calculate the Internal Rate of return and based on your answer state if project should be accepted c) Calculate the Accrual Rate of Return and based on your…
NPV, ination and taxes. Fancy Foods is considering replacing all 12 of its meat scales with new, digital ones. The old scales are fully depreciated and have no disposal value. The new scales cost $120,000 (in total). Because the new scales are more efficient and more accurate than the old scales, Fancy Foods will have annual incremental cash savings from using the new scales in the amount of $30,000 per year. The scales have a 6-year useful life and no terminal disposal value and are depreciated using the straight-line method. Fancy Foods requires a 6% real rate of return.
A packaging factory is considering the replacement of some equipment. The new plan is to install equipment to produce a new can that uses less energy and less metal than the old one. Current equipment was installed 5 years ago for $100 million and can be sold for $35 million. Due to obsolescence the depreciation of this equipment results in an annual depreciation of $4 million for the next years. If you keep this equipment for one more year your operating and maintenance costs will be $65 million increasing by $3 million/year each year thereafter. The new equipment will cost $130 million, with an economic life of 8 years and a salvage value of $10 million. Its operating and maintenance costs will be $49 million. For a TMAR = 15% p.a. what new equipment should be installed? Make a recommendation about it. (Answer: The solution would be to use the current equipment for another two years and then exchange it for new equipment.
Wendy ice cream factory is considering the purchase of a new machine. The machine would cost $400,000 and has an estimated useful life of 10 years with a residual value of 50,000. Management estimates that the new machine will provide net annual cash flow of $60 000. Management also believes that the new machine will save the company money because it is expected to be more reliable than other machine and will reduce downtime. Assume the discount rate is 10%, how much would the reduction in downtime have to be worth, in present value dollars, in order for this investment to be acceptable? (Use Present Value Tables to help calculate your answer) Select one: а. 13,049 O b. 40,000 с. 29,000 O d. 12,049
Sumami Ink considers replacing its old machine. The old machine’s current market value is $2 million and its current book value is $1 million. If not sold, it will have a market value at the end of 5 years of $200,000 and a book value of zero. A replacement new machine costs $3 million, and at the end of the five years it will have a market value of $500,000, and will be fully depreciated by the straight‐line method. Assume that the asset class will be closed, and the corporate tax rate is 34%. What is the total investment cash flow in year 0 and the total investment cash flow by the end of year 5? Multiple Choice -$1000K & $198K respectively. -$3000k & $500k respectively. -$1000K & $300K respectively. -$1,340k & $300k respectively. -$1,340k & $198k respectively. -$5000k & $700k respectively.
Kingbird Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $200,000 and has an estimated useful life of eight years with zero salvage value. Management estimates that the new bottling machine willprovide net annual cash flows of $39,500. Management also believes that the new machine will save the company money because it is expected to be more reliable than other machines, and thus will reduce downtime. Assume a discount rate of 12%. Click here to view the factor table. Calculate the net present value. (lf the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.8. 1.25124. 5 Round present value answer to 0 decimal places, e.8. 1,250.) 1. net present value? 2. How much would the reduction in downtime have to be worth in order for the project to be acceptable? Present value of reduction…
Cullumber Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $163,500 and has an estimated useful life of 8 years with zero salvage value. Management estimates that the new bottling machine will provide net annual cash flows of $30,700. Management also believes that the new bottling machine will save the company money because it is expected to be more reliable than other machines, and thus will reduce downtime. Assume a discount rate of 12%. Click here to view PV table. Calculate the net present value. (If the net present value is negative, use either a negative sign preceding the number eg-45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to O decimal places, eg. 125) Net present value $ How much would the reduction in downtime have to be worth in order for the project to be acceptable? (Round answer to O decimal places, e.g. 125) $
Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $180,000 and has an estimated useful life of 8 years with zero salvage value. Management estimates that the new bottling machine will provide net annual cash flows of $34,000. Management also believes that the new bottling machine will save the company money because it is expected to be more reliable than other machines, and thus will reduce downtime. Assume a discount rate of 12%. Click here to view the factor table. Calculate the net present value. (If the net present value is negative, use either a negative sign preceding the number eg-45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to O decimal places, e.g. 125.) Net present value $ How much would the reduction in downtime have to be worth in order for the project to be acceptable? (Round answer to O decimal places, e.g. 125.)