Uramilaben Walton Manufacturing Company has an opportunity to purchase some technologically advanced equipment that will reduce thecompany's cash outflow for operating expenses by $1,285,000 per year. The cost of the equipment is $5,704,393.85. Walton expects itto have a 12-year useful life and a zero salvage value. The company has established an investment opportunity hurdle rate of 19percent and uses the straight-line method for depreciation. (PV of $1 and PVA of $1)Note: Use appropriate factor(s) from the tables provided.Requireda. Calculate the internal rate of return of the investment opportunity.Note: Do not round intermediate calculations.b. Indicate whether the investment opportunity should be accepted.a. Internal rate of returnb. Should the investment opportunity be accepted?%I

a. Compute the present value factor: Present value factor = Amount invested / Annual net cash…

Answered: Walton Manufacturing Company has an…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 10E: Roberts Company is considering an investment in equipment that is capable of producing more...

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The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
Although the Chen Company’s milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $110,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $19,000 per year. It would have zero salvage value at the end of its life. The project cost of capital is 10%, and its marginal tax rate is 25%. Should Chen buy the new machine?
Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.
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?
Roberts Company is considering an investment in equipment that is capable of producing more efficiently than the current technology. The outlay required is 2,293,200. The equipment is expected to last five years and will have no salvage value. The expected cash flows associated with the project are as follows: Required: 1. Compute the projects payback period. 2. Compute the projects accounting rate of return. 3. Compute the projects net present value, assuming a required rate of return of 10 percent. 4. Compute the projects internal rate of return.
Franklin Manufacturing Company has an opportunity to purchase some technologically advanced equipment that will reduce the company's cash outflow for operating expenses by $1,273,000 per year. The cost of the equipment is $8,268,212.65. Franklin expects it to have a 11-year useful life and a zero salvage value. The company has established an investment opportunity hurdle rate of 15 percent and uses the straight-line method for depreciation. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required a. Calculate the internal rate of return of the investment opportunity. (Do not round intermediate calculations.) b. Indicate whether the investment opportunity should be accepted. a Internal rate of return b. Should the investment opportunity be accepted? %
Finch Manufacturing Company has an opportunity to purchase some technologically advanced equipment that will reduce the company's cash outflow for operating expenses by $1,273,000 per year. The cost of the equipment is $5,131,420.99. Finch expects it to have a 9-year useful life and a zero salvage value. The company has established an investment opportunity hurdle rate of 19 percent and uses the straight-line method for depreciation. (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Required a. Calculate the internal rate of return of the investment opportunity. Note: Do not round intermediate calculations. b. Indicate whether the investment opportunity should be accepted. a. Internal rate of return b. Should the investment opportunity be accepted? %
Thornton Manufacturing Company has an opportunity to purchase sometechnologically advanced equipment that will reduce the company's cash outflow foroperating expenses by $1, 278,000 per year. The cost of the equipment is S7,661,925.67. Thornton expects it to have a 9 - year useful life and a zero salvagevalue. The company has established an investment opportunity hurdle rate of 15percent and uses the straight - line method for depreciation. (PV of S1 and PVA of S1) (Use appropriate factor (s) from the tables provided.) Required Calculate theinternal rate of return of the investment opportunity. (Do not round intermediatecalculations.) Indicate whether the investment opportunity should be accepted.
Walton Manufacturing Company has an opportunity to purchase some technologically advanced equipment that will reduce the company's cash outflow for operating expenses by $1,287,000 per year. The cost of the equipment is $5,187,854.53. Walton expects it to have a 9-year useful life and a zero salvage value. The company has established an investment opportunity hurdle rate of 19 percent and uses the straight-line method for depreciation. (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. W Required a. Calculate the internal rate of return of the investment opportunity. Note: Do not round intermediate calculations. b. Indicate whether the investment opportunity should be accepted. a. Internal rate of return b. Should the investment opportunity be accepted? Prev 1 of 15 「買買買 --- MacBook Air Next >
ces Finch Manufacturing Company has an opportunity to purchase some technologically advanced equipment that will reduce the company's cash outflow for operating expenses by $1,280,000 per year. The cost of the equipment is $6,820,160.00. Finch expects it to have a 9-year useful life and a zero salvage value. The company has established an investment opportunity hurdle rate of 11 percent and uses the straight-line method for depreciation. (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Required a. Calculate the internal rate of return of the investment opportunity. Note: Do not round intermediate calculations. b. Indicate whether the investment opportunity should be accepted. a. Internal rate of return b. Should the investment opportunity be accepted? % 4
Zeon, a large profitable corporation, is considering adding some automatic equipment in its production facilities. An investment of $400,000 will produce an initial annual benefit of $182,000, but the benefits are expected to decline $4,000 per year. The firm uses Straight-Line depreciation, a 4 year useful life and $56,000 salvage value. Assume that the equipment can be sold for its $56,000 salvage value at the end of 4 years. Also assume a 46% income tax rate for state and federal taxes combined. The following After-Tax Cash Flow Table has been prepared. Before-Tax Straight-Line Taxable Income Taxes After-Tax Year Cash Flow Depreciation Income at 46% Cash Flow 10 -400,000 -400,000 1 182,000 86,000 96,000 44,160 137,840 12 178,000 86,000 92,000 42,320 135,680
WayMart Company is considering a long-term investment in a project called PET. PET will require an investment of $100,000. It will have a useful life of 5 years and no salvage value. Annual revenues would increase $70,000, and annual expenses (including depreciation) would increase by $45,000. WayMart uses the straight-line depreciation method to compute depreciation expense. The company's required rate of return is 12%. (20 points) lac

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