Vijay Cullumber, Inc., management is considering purchasing a new machine at a cost of $3,960,000. It expects this equipment to producecash flows of $799,090, $843,550, $911,430, $989,200, $1,184,560, and $1,168,400 over the next six years. If the appropriatediscount rate is 15 percent, what is the NPV of this investment? (Enter negative amounts using either a negative sign preceding the numbere.g.-45 or parentheses e.g. (45). Do not round discount factors. Round other intermediate calculations and final answer to O decimal places, e.g1,525.)The NPV is$

Answered: Image /qna-images/answer/b0bb4a15-fe61-4788-a60f-7f67ab6abc30.jpg

Answered: Cullumber, Inc., management is…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 18EA: Consolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and...

See similar textbooks

Similar questions

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.
Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
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?
Markoff Products is considering two competing projects, but only one will be selected. Project A requires an initial investment of $42,000 and is expected to generate future cash flows of $6,000 for each of the next 50 years. Project B requires an initial investment of $210,000 and will generate $30,000 for each of the next 10 years. If Markoff requires a payback of 8 years or less, which project should it select based on payback periods?
If a garden center is considering the purchase of a new tractor with an initial investment cost of $120,000, and the center expects a return of $30,000 in year one, $20,000 in years two and three. $15,000 In years four and five, and $10,000 in year six and beyond, what is the payback period?
Manzer Enterprises is considering two independent investments: A new automated materials handling system that costs 900,000 and will produce net cash inflows of 300,000 at the end of each year for the next four years. A computer-aided manufacturing system that costs 775,000 and will produce labor savings of 400,000 and 500,000 at the end of the first year and second year, respectively. Manzer has a cost of capital of 8 percent. Required: 1. Calculate the IRR for the first investment and determine if it is acceptable or not. 2. Calculate the IRR of the second investment and comment on its acceptability. Use 12 percent as the first guess. 3. What if the cash flows for the first investment are 250,000 instead of 300,000?
Cullumber, Inc., management is considering purchasing a new machine at a cost of $3,960,000. It expects this equipment to produce cash flows of $799,090, $843,550, $911,430, $989,200, $1,184,560, and $1,168,400 over the next six years. If the appropriate discount rate is 15 percent, what is the NPV of this investment? (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Do not round discount factors. Round other intermediate calculations and final answer to O decimal places, e.g. 1,525.) The NPV is
Kingston, Inc. management is considering purchasing a new machine at a cost of $4,150,315. They expect this equipment to produce cash flows of $756,424, $834,614, $932,657, $1,071,731, $1,298,352, and $1,243,375 over the next six years. If the appropriate discount rate is 15 percent, what is the NPV of this investment? (Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.) The NPV is $ _____________
Pharoah Automotive is considering adding state safety inspections to its service offerings. The equipment necessary to perform these inspections will cost $512,000 and will generate cash flows of $179,000 over each of the next five years. If the cost of capital is 14 percent, what is the MIRR on this project?(
Spacevoyage Inc. is considering the installation of a new experimental laboratory which requires a key equipment costing $5,000,000. It is expected that the equipment will generate important experimental material worth $2,000,000 for each of the next 5 years. In the 6th year, the equipment will need an upgrade costing $2,500,000. Required return for this project is 15%. a) Which capital budgeting method between NPV and IRR will be most suitable for arriving at a decision on whether or not to get the equipment installed? Briefly explain your reasons. b) Should the new equipment be installed? Support your answer with relevant computation.
Spacevoyage Inc. is considering the installation of a new experimental laboratory which requires a key equipment costing $5,000,000. It is expected that the equipment will generate important experimental material worth $2,000,000 for each of the next 5 years. In the 6th year, the equipment will need an upgrade costing $2,500,000. Required return for this project is 15%. a) Which capital budgeting method between NPV and IRR will be most suitable for arriving at a decision on whether or not to get the equipment installed? Briefly explain your reasons. (50-75 words) b) Should the new equipment be installed? Support your answer with relevant computation.

SEE MORE QUESTIONS

Recommended textbooks for you

Principles of Accounting Volume 2

Accounting

ISBN:

9781947172609

Author:

OpenStax

Publisher:

OpenStax College

Managerial Accounting: The Cornerstone of Busines…

Accounting

ISBN:

9781337115773

Author:

Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:

Cengage Learning

Cornerstones of Cost Management (Cornerstones Ser…

Accounting

ISBN:

9781305970663

Author:

Don R. Hansen, Maryanne M. Mowen

Publisher:

Cengage Learning

Principles of Accounting Volume 2

Accounting

ISBN:

9781947172609

Author:

OpenStax

Publisher:

OpenStax College

Managerial Accounting: The Cornerstone of Busines…

Accounting

ISBN:

9781337115773

Author:

Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:

Cengage Learning

Cornerstones of Cost Management (Cornerstones Ser…

Accounting

ISBN:

9781305970663

Author:

Don R. Hansen, Maryanne M. Mowen

Publisher:

Cengage Learning

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

SEE MORE TEXTBOOKS