An automobile company is planning to install inspection procedures to reduce the cost of repairs to new and used automobiles under warranty. Economic life is 10 years with a 25% rate of return, zero salvage value. How much money should be invested based on a rate of return analysis? Plan Equipment $ Annual labor cost $ Cost of car repairs $ Actual 1585000 A 1400000 40000 680000 B 1700000 50000 610000 C 1800000 60000 300000 D 2000000 70000 230000 E 2600000 80000 180000 3000000 85000 165000 LL F

An automobile company is planning to install inspection procedures to reduce the cost of repairs to new and used automobiles under warranty. Economic life is 10 years with a 25% rate of return, zero salvage value. How much money should be invested based on a rate of return analysis? Plan Equipment $ Annual labor cost $ Cost of car repairs $ Actual 1585000 A 1400000 40000 680000 B 1700000 50000 610000 C 1800000 60000 300000 D 2000000 70000 230000 E 2600000 80000 180000 3000000 85000 165000 LL F

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section9.A: Depreciation

Problem 1P

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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?
Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $190,000, a 3-year expected life, and after-tax cash flows (labor savings and depreciation) of $87,000 per year; and Machine 360-6, which has a cost of $360,000, a 6-year life, and after-tax cash flows of $98,300 per year. Knitting machine prices are not expected to rise because inflation will be offset by cheaper components (microprocessors) used in the machines. Assume that Filkins’ cost of capital is 14%. Should the firm replace its old knitting machine? If so, which new machine should it use? By how much would the value of the company increase if it accepted the better machine? What is the equivalent annual annuity for each machine?
D**M Pizza has a delivery car that is uses for pizza deliveries. The transmission needs to be replaced, and there are several other repairs that need to be done. The car is nearing the end of its life, so the options are to either overhaul the car or replace it with a new car. D&M’s has put together the following budgetary items: If D&M replaces the transmission of the pizza delivery vehicle, they expect to be able to use the vehicle for another 5 years. If they purchase a new vehicle, they will sell the existing one and use the new vehicle for 5 years and then trade it in for another new pizza delivery vehicle. If they trade for the new delivery vehicle, their operating expenses will decrease because the new vehicle is more gas efficient. This project is analyzed using a discount rate of 15%. What should D&M do?
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?
An automobile company is planning to install inspection procedures to reduce the cost of repairs to new and used automobiles under warranty.The economic life is 10 years with a 25% rate of return, zero salvage value.How much money should be invested based on a rate of return analysis. Plan Equipment Annual labor cost Cost of car repairs Current 1,585,000 A 1,400,000 40,000 680,000 B 1,700,000 50,000 610,000 C 1,800,000 60,000 300,000 D 2,000,000 70,000 230,000 E 2,600,000 80,000 180,000 F 3,000,000 85,000 165,000
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Need answers ASAP... A $2500 computer system can be leased for $79 per month for 3 years. After 3 years, it can be purchased for $750. This is also the salvage value if the system was purchased originally. What is the effective annual rate for leasing the computer?
A company needs to have a working machine during each of the next six years. Currently, it has a new machine. At the beginning of each year, the company may keep the machine or sell it and buy a new one. A machine cannot be kept for more than three years. A new machine costs $5,000. The revenues earned by a machine, the cost of maintaining it, and the salvage value that can be obtained by selling it at the end of a year depend on the age of the machine (see Table 21). Use dynamic programming to maximize the net profit eamed during the next six years. TABLE 21 Age of Machine at Beginning of Year 0 Vear 1Year 2 Years Revenues (5) 4,500 3,000 1500 Operating Costs (S) 500 700 1,100 Salvage Value at End of Year (5) | 3,000 1,800 500
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A widget manufacturing plant manager decides to purchase a new drill press with borrowed funds in order to improve efficiency at the plant. The drill press costs Php 2,000,000. The operating expense for the press in the first year is projected to be Php 350,000, increasing annually at a rate of 4% in subsequent years. The drill press has a useful life of 8 years and the yearly interest rate is 7.5% compounded annually, how much will total costs be for the drill press?