no more risky than this one. Machine A Machine B Original cost Labor per year Maintenance per year $10,000 2,000 4,000 2,000 $20,000 4,000 1,000 7,000 Salvage value Determine, via the present value method, which machine Tim should recommend.
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- 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?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.Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $420,000 and will generate $95,000 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?Shonda & Shonda is a company that does land surveys and engineering consulting. They have an opportunity to purchase new computer equipment that will allow them to render their drawings and surveys much more quickly. The new equipment will cost them an additional $1.200 per month, but they will be able to increase their sales by 10% per year. Their current annual cost and break-even figures are as follows: A. What will be the impact on the break-even point if Shonda & Shonda purchases the new computer? B. What will be the impact on net operating income if Shonda & Shonda purchases the new computer? C. What would be your recommendation to Shonda & Shonda regarding this purchase?Your boss has told you to evaluate the cost of two machines.After some questioning, you are assured that they have thecosts shown at the right. Assume:a) The life of each machine is 3 years.b) The company thinks it knows how to make 14% oninvestments no riskier than this one.Determine via the present value method which machine topurchase. MACHINE A MACHINE BOriginal cost $13,000 $20,000Labor cost per year 2,000 3,000Floor space per year 500 600Energy (electricity) per year 1,000 900Maintenance per year 2,500 500Total annual cost $ 6,000 $ 5,000Salvage value $ 2,000 $ 7,000
- A machine has an initial investment of $1,300,000, annual revenue will be $500,000 and the annual expenses will be $100,000 over five years study period. If the MARR=12% the PW of this machine is $141,920 means that this machine is acceptable. By how much (in percentage) can the initial investment be increased without causing the investor to reject the machine? a. 10.9% b. 8.9% C. 20% d. 12.3% е. 6.7% f. 11.9% O ONEED ASAP !!!! WITH EXPLANATION Santos Company needs a new cutting machine. The company is considering two machines: machine X and machine Y. Machine A costs$18,000, has a useful life of ten years, and will reduce operating costs by $7,000 per year. Machine B costs only $12,500, will also reduceoperating costs by $3,500 per year, but has a useful life of only five years.The payback period formula is = Investment required / Annual Net Cash Inflow Which machine should be purchased according to the payback method? a)Machine Xb) none of the abovec) Machine Yd) Both have the same payback periodS7.37 Tim Smunt has been asked to evaluate two machines. After some investigation, he determines that they have the costs shown in the following table. He is told to assume that: 1. The life of each machine is 3 years. 2. The company thinks it knows how to make 12% on investments no more risky than this one. 3. Labor and maintenance are paid at the end of the year. MACHINE A MACHINE B $10,000 2,000 4,000 2,000 $20,000 Original cost Labor per year Maintenance per year Salvage value 4,000 1,000 7,000 Determine, via the present value method, which machine Tim should recommend.
- A manufacturer of automated optical inspection devices is deciding on a project to increase the productivity of the manufacturing processes. The estimated costs for the two feasible alternatives being compared are shown below. Use the internal rate of return (IRR) method to determine which alternative should be selected if the analysis period is 8 years and the company's MARR is 4% per year. Alternative M N Initial costs $30,000 $45,000 Net annual cash flow $4,500 $7,000 Life in years 8 8 (a) IRR of base alternative = (b) IRR of incremental cash flow = (c) Choose AlternativePARC Co. has asked you to recommend a new nutcracker machine. After months of hard research, you have collected the following data: Data Life, Years First Cost (FC) Benefit, Yearly (AB) Benefit Gradient (ABG) O&M cost Gradient (M&OG) O&M Cost uniform annual Salvage Value O 21 years O 12 years O 18 years KRAX 6 O 24 years $202,000 73,000 1,200 600 18,000 42,000 SPLIT-NUT 9 $285,000 88,000 PARC Co. assumes MARR = 15%. Using the Net Present Worth (NPW) analysis: The analysis period if you are going to use NPW is close to: 1,300 1,100 34,000 48,000The management of a manufacturing company is planning to buy a new milling machine. The investment cost is $17,613. At the end of its 6-year expected life, the equipment will have a salvage value of $8,000. There is an upgrade cost of $9,572 at the end of year 3. The equipment can save $5,000 per year by increasing productivity. Suppose that ϵ=MARR=18%. Determine the project’s ERR.
