Evaluate each machine, using the following methods:Accounting rate of return
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Lesego Ltd is considering an investment in a new machine for the production of a new product, X. There are two possibilities, Machine A and Machine B. Both product X and the machine would have an expected life of five years.The following information is available:Product X Selling price $50Variable cost 32Increase in fixed
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- 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.Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?Lesego Ltd is considering an investment in a new machine for the production of a new product, X. There are two possibilities, Machine A and Machine B. Both product X and the machine would have an expected life of five years. The following information is available: Product X Selling price $50 Variable cost 32 Increase in fixed overhead (excluding depreciation of the new machine) is $90,000 per year. Year Sales units 1 10,000 2 15,000 3 20,000 4 20,000 5 5,000 Machine A Machine B Initial cost ($000) 550 480 Residual value 50 30 The company's cost of capital is 10%, Required: a. Evaluate each machine, using the following methods: i. Accounting rate of return ii. Payback; iii. Net present value. b. Discuss the importance of capital…
- QUESTION ONEETM Co is considering investing in machinery costing K150,000 payable at the start of firstyear. The new machine will have a three-year life with K60,000 salvage value at the end of 3 years. Other details relating to the project are as follows.Year 1 2 3 Demand (units) 25,500 40,500 23,500 Material cost per unit K4.35 K4.35 K4.35 Incremental fixed cost per year K45,000 K50,000 K60,000Shared fixed costs K20,000 K20,000 K20,000The selling price in year 1 is expected to be K12.00 per unit. The selling price is expected to rise by 16% per year for the remaining part of the project’s life.Material cost per unit will be constant at K4.35 due to the contract that ETM has with its suppliers. Labor cost per unit is expected to be K5.00 in year 1 rising by 10% per year beyond the first year. Fixed costs (nominal) are made of the project fixed cost and a share of head office overhead. Working capital will be…A manufacturing company is trying to decide between the two machines shown below. Determine which machine should be selected on the basis of rate of return. Assume the MARR is 20% per year. Machine A Machine B Initial Cost, $ -18,000 -35,000 Annual operating cost, $/year -4,000 -3,600 Salvage value, $ 1,000 2,700 Life, years 3 6A new process for manufacturing laser levels will have a first cost of $40,000 with annual cost o f$17,000. Extra income associated with the new process is expected to be $22,000 per year. Determine the payback period at:. (A) i= 0% (B) i= 10% per year
- A company wants to buy a machine with a cash sale price of 750,000 TL. The machine is economicallife is 4 years and at the end of this period the estimated scrap value will be 100,000 TL. Annual maintenance cost 20.000 TLAs per the contract, there will be no increase in maintenance costs for 4 years. From products to be produced by machine300.000 TL sales revenue will be obtained in the first year and sales revenues will increase by 15% in the following yearsIt is estimated. The labor and material expenses in the first year are estimated to be 100,000 TL and the labor costs in the following years.and supplies costs will increase by 10% each year. If the expected return rate from this investment is 20%,Calculating the present value (NPV) ”and whether the investment in machinery will be economical according to this methodspecifyElearning Company would like to develop its technology process by purchasing a production equipment for 11.2 million HUF. The equipment is expected to have a useful life of 5 years, and will be sold at the end of 5 years for 2.5 million HUF. The annual operating costs are predicted to be 1.5 million HUF. The estimated revenues are in yearly sequence ( HUF) 5.2 million; 5.5 million; 6.1million; 7 million; 7.5 million. The company's required rate of return is 12 percent. You can see the way of the economic efficiency calculation in the table. Some of the data are missing. Enter the missing data in the table. Perform further calculations and explain the results obtained. Data Year O Year 1 Year 2 Year 3 Year 4 Year 5 Pt (M HUF) 5.2 5.5 6.1 7 kt (M HUF) 1.5 1.5 1.5 1.5 1.5 Et (M HUF) 11.2 CFt (M HUF) -11.2 3.7 4 4.6 5.5 8.5 Dt 1 0.89286 0.79719 0.63552 0.56743 CFt*Dt (M HUF) -11.20 3.30 3.19 3.27 4.82 ECF**Dt (M HUF) -11.20 -7.90 -4.71 -1.43 2.06 The NPV of the project is million HUF.REQUIRED Study the information given below and calculate the following: Payback period (in years, months and days) Net Present Value Internal Rate of Return (expressed to two decimal places). (Note: Your answer must include the interpolation.) information Eva Limited is considering the purchase of a machine. The company desires a minimum required rate of return of 12%. The machine will cost R2 200 000 plus installation costs of R200 000 and is expected to have a useful life of six years. It is anticipated that the machine will have a salvage value of R100 000. The machine is expected to increase revenues by R800 000 per year but will require the employment of two new machine operators at R100 000 per year for each operator, and it will also require maintenance and repairs averaging R50 000 per year. Depreciation is estimated to be R400 000 per year.
- cure Rex Industries plans to expand its product line. The project requires an initial investment of $285,000 to purchase new equipment. The project is expected to generate the following annual revenues and expenses each year during its 9-year life: . Sales revenues Variable costs Contribution margin Fixed costs: - Salary expense - Rent expense Depreciation expense O 4.4 years O 4.6 years O 8.4 years $31,000 39,000 30,000 O 8.9 years O None of the above $170,000 (38,000) $132,000 Operating income The only non-cash item of income or expense is depreciation expense. The salvage value of the equipment at the end of the 9 years is $15,000. What is the payback period of this project in years? Round to one decimal point. (100,000) $32,000 PQUse the information provided below to calculate the Accounting Rate of Return on averageinvestment (expressed to two decimal places). INFORMATIONThe management of Unicorn Limited is presently appraising the production and sale of a new product. Thiswould involve the purchase of a new machine with a cost price of R500 000. The machine is expected to havea useful life of six years and a scrap value of R100 000.Annual sales of the product are estimated to be 3 000 units at a selling price of R120 per unit. Expenses(including depreciation) are expected to amount to R80 per unitA new machine is expected to save $33,400 annually in labor and energy expenses. How much can be justified for the purchase of this equipment now if the company's interest rate is 15% and the machine's useful life is 6 years? O a. $86,638 O b. $292,375 O c. $200,400 O d. $139,042 O e. $126,402
