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- Austins cell phone manufacturer wants to upgrade their product mix to encompass an exciting new feature on their cell phone. This would require a new high-tech machine. You are excited about his new project and are recommending the purchase to your board of directors. Here is the information you have compiled in order to complete this recommendation: According to the information, the project will last 10 years and require an initial investment of $800,000, depreciated with straight-line over the life of the project until the final value is zero. The firms tax rate is 30% and the required rate of return is 12%. You believe that the variable cost and sales volume may be as much as 10% higher or lower than the initial estimate. Your boss understands the risks but asks you to explain the alternatives in a brief memo to the board, Write a memo to the Board of Directors objectively weighing out the pros and cons of this project and make your recommendation(s).Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?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.
- If 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?Covington Pharmacies has decided to automate its insurance claims process. Two networked computer systems are being considered. The systems have an expected life of two years. The net cash flows associated with the systems are as follows. The cash benefits represent the savings created by switching from a manual to an automated system. The companys cost of capital is 10 percent. Required: 1. Compute the NPV and the IRR for each investment. 2. Show that the project with the larger NPV is the correct choice for the company.Consolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and provide the following cash flows over the next five years: $88,000, 92,000, $91,000, $72,000, and $71,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel, see Appendix C.
- 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.A company that manufactures high-strength epoxys is considering investing $100,000 in two new adhesives identified as X and Z. The investment in X is $20,000 and is expected to yield a rate of return of 40% per year. Your supervisor asked you to determine what rate of return would be required on the remaining $80,000 in order for the total return to be at least 25%. You responded that the return would have to be at least: (a) 10.4% (b) 16.8% (c) 21.3% (d) 24.1%A company that manufactures high-strength epoxys is considering investing $100,000 in two new adhesives identified as X and Z. The investment in X is $20,000 and is expected to yield a rate of return of 40% per year. Your supervisor asked you to determine what rate of return would be required on the remaining $80,000 in order for the total return to be at least 25%. You responded that the return would have to be at least Multiple Choice O O 10.4% 16.8% 21.3% 24.1%
- A marketing company intends to distribute a new product. It is expected to produce net returns of $16,000 per year for the first four years and $15,000 per year for the following three years. The facilities required to distribute the product will cost $70,000 with a disposal value of $13,000 after seven years. The facilities will require a major facelift costing $11,000 each after three years and after five years. If the company requires a return on investment of 10%, should the company distribute the new product? The company distribute the new product.The company would like you to look at a new project. This project involves the purchase of a new $2,000,000 fully auto mated plasma cutter that can be used in our metal works division. The products manufactured using the new technol ogy are expected to sell for an average price of $300 per unit, and the company analyst expects that the firm can sell 20,000 units per year at this price for a period of five years. The cutter will have a residual or savage value of $200,000. at the end of the project's five-year te. The firm also expects to have to invest an additional $300,000 in working capital to support the new business. Other pertinent Information concerning the business venture is as follows: (look at the picture attached) a) Estimate the cash flows for the investment under the listed base-case assumptions. Calculate the project NPV for these cash flows. b) Evaluate the NPV of the investment under the worst-case and best-case assumptions.You must analyze a potential new product --- a caulking compound that Korry Materials’ R&D people developed for use in the residential construction industry. Korry’s marketing manager thinks they can sell 115,000 tubes per year at a price of $3.25 each for 3 years, after which the product will be obsolete. The required equipment would cost $125,000, plus another $25,000 for shipping and installation. Current assets (receivables and inventories) would increase by $35,000, while current liabilities (accounts payables and accruals) would rise by $15,000. Variable costs would be 60 percent of sales revenue, fixed costs (exclusive of depreciation) would be $70,000 per year, and the fixed assets would be depreciated under MACRS with a 3-year life. When production ceases after 3 years, the equipment should have a market value of $15,000. Korry’s tax rate is 40 percent, and it uses a 10 percent WACC for average risk projects. The R&D costs for the new product were $30,000, and…