Grady Corporation is considering the purchase of a new piece of equipment. The equipment costs $51,100 and will have a salvagevalue of $5,120 after 9 years. Using the new piece of equipment will increase Grady's annual net cash flows by $6,090. Grady's cost ofcapital is 15%. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1)Note: Use appropriate factor from the PV tables.Required:a. What is the present value of the increase in annual cash flows?b. What is the present value of the salvage value?c. What is the net present value of the equipment purchase?d. Based on financial factors, should Grady purchase the equipment?Complete this question by entering your answers in the tabs below.Required A Required B Required CRequired DWhat is the present value of the increase in annual cash flows?Note: Round your answer to the nearest whole dollar.Present ValueRequired B >

Find the present value of the increase in annual cash flows.Step 1: Identify the annual cash…

Answered: Grady Corporation is considering the…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 4P

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The Ham and Egg Restaurant is considering an investment in a new oven that has a cost of $60,000, with annual net cash flows of $9,950 for 8 years. The required rate of return is 6%. Compute the net present value of this investment to determine whether or not you would recommend that Ham and Egg invest in this oven.
Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
Bouvier Restaurant is considering an investment in a grill that costs $140,000, and will produce annual net cash flows of $21,950 for 8 years. The required rate of return is 6%. Compute the net present value of this investment to determine whether Bouvier should invest in the grill.
Conestoga Plumbing plans to invest in a new pump that is anticipated to provide annual savings for 10 years of $50,000. The pump can be sold at the end of the period for $100,000. What is the present value of the investment in the pump at a 9% interest rate given that savings are realized at year end?
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.
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Washington-Pacific (W-P) invested $4 million to buy a tract of land and plant some young pine trees. The trees can be harvested in 10 years, at which time W-P plans to sell the forest at an expected price of $8 million. What is W-P’s expected rate of return?
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Grady Corporation is considering the purchase of a new piece of equipment. The equipment costs $50,100 and will have a salvage value of $5,090 after 9 years. Using the new piece of equipment will increase Grady's annual net cash flows by $6,080. Grady's cost of capital is 11%. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1) Note: Use appropriate factor from the PV tables. Required: a. What is the present value of the increase in annual cash flows? b. What is the present value of the salvage value? c. What is the net present value of the equipment purchase? d. Based on financial factors, should Grady purchase the equipment? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D What is the present value of the increase in annual cash flows? Note: Round answer to the nearest whole dollar. Present Value
Malone Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $24330. The equipment will have an initial cost of $154350 and have a 5-year life. The salvage value of the equipment is estimated to be $21260 Factors to use for n-5.1-8% (DO NOT USE ANY OTHER FACTORS OR EQUATIONS) Future Value of an Annuity of $1 5.8666 Future Value of $1 1,4693 3.9927 0.6806 Present Value of an Annuity of $1 Present Value of $1 If the hurdle rate is 8%, what is the approximate not present value? Ignore income taxes
Grady Corp. is considering the purchase of a new piece of equipment. The equipment costs $50,700, and will have a salvage value of $5,070 after six years. Using the new piece of equipment will increase Grady's annual cash flows by $6110. Grady has a hurdle rate of 13%. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor from the PV tables.) a. What is the present value of the increase in annual cash flows? (Round your answer to 2 decimal places.) Present Value b. What is the present value of the salvage value? (Round your answer to 2 decimal places.) Present Value c. What is the net present value of the equipment purchase? (Negative value should be indicated by a minus sign. Round your intermediate calculation and final answer to 2 decimal places.) Net Present Value
Rooney, Incorporated is considering the purchase of a new machine costing $700,000. The machine's useful life is expected to be 8 years with no salvage value. The straight-line depreciation method will be used. The net increase in annual after-tax cash flow is expected to be $156,000. Rooney estimates its cost of capital to be 12%. (The present value of a $1 annuity for 8 years at 12% is 4.968, and the present value of $1 to be received in 8 years is 0.404.) The net present value of the investment in the machine under consideration is: Multiple Choice $156,000. $75,008. $87,500. $126.800.

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