An equipment costing $57,500 is being considered for a production process at Dew Chemicals. The expected benefits per year is $4,500 and estimated salvage value is $10,000. Determine the rate of return the company can get in this equipment proposal. Equipment life = 15 years.

An equipment costing $57,500 is being considered for a production process at Dew Chemicals. The expected benefits per year is $4,500 and estimated salvage value is $10,000. Determine the rate of return the company can get in this equipment proposal. Equipment life = 15 years.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 5P

See similar textbooks

Related questions

Q: You are evaluating two different silicon wafer milling machines. The Techron I costs $258,000, has a…

A: Equivalent Annual cost (EAC) is the total cost incurred by the company annually for operating and…

Q: You are evaluating two different silicon wafer milling machines. The Techron I costs $225,000, has a…

A: EAC is a capital budgeting technique, so as to evaluate the cost effectiveness of projects/ assets…

Q: The project manager of a steel manufacturing factory in Hamilton puts forth a proposal to the senior…

A: There is no tax rate is given. Hence, the increase in profits should be considered as net cash…

Q: A piece of new equipment has been proposed by engineers to increase the productivity of a certain…

A: Internal Rate of Return: When evaluating projects or investments, the internal rate of return is…

Q: An energy specialist was asked to provide two plans for the engineering department of Makati…

A: The conceptual formula used:

Q: A small manufacturing company is evaluating trucks for delivering their products. Truck A has a…

A: A method of capital budgeting that helps to evaluate the present worth of cash flow and a series of…

Q: what is the present worth of this investment?

A: Time value of money (TVM) refers to the method or technique which is used to measure the amount of…

Q: A casting company is considering the replacement analysis of a furnace. If it is bought from A…

A: The present value of the annuity is the current worth of a cash flow series at a certain rate of…

Q: The initial investment cost of machine A is $ 9,000 and the useful life of the machine is 6 years…

A: Answer Calculation of Net Present cost equivalent per year

Q: A piece of new equipment has been proposed by engineers to increase the productivity of a certain…

A: Present Worth Present value is the present worth of any sum of money to be received in the future at…

Q: You are evaluating a project for a superior pickleball paddle. You estimate the sales price to be…

A: NPV It is a capital budgeting tool to decide on whether the capital project is beneficial for the…

Q: A mining company need to decide which of the equipment models to use in a project that will last for…

A: Using excel

Q: Suppose that you have just completed the mechanical design of an equipment that has an investment…

A: Annual Depreciation (straight line method) = (Cost of the assets - Residual value) / Expected life…

Q: Engine valves company is considering building an assembly plant .The decision has been narrowed down…

A: In making the decision, we can use the Present Value of costs of the given alternatives. The…

Q: You are evaluating two different silicon wafer milling machines. The Techron I costs $216,000, has a…

A: Given: Techron 1 Initial cost = $216000 Life = 3 years Pretax operating cost = $55000 Depreciation…

Q: Poly-Chem Plastics is considering two types of injection molding machines: hydraulic and electric.…

A: here to solve this question we have to calculate the IRR of incremental cash flow of both the…

Q: An industrial machine costing $10,000 will produce net cash savings of $4,000 per year. The machine…

A: Sensitivity Analysis: It is possible to identify the effect of several independent variables on a…

Q: A plant's Product Engineering Department is trying to calculate the Uniform Equivalent Annual Cost…

A: The change in one variable with respect to change in another variable is known as sensitivity…

Q: Production engineers of a manufacturing firm have proposed a new equipment to increase productivity…

A: Annual revenue = 200,000 Salvage value = 100,000 Initial cost = 500,000 Rate of return = 15% Time…

Q: A printed circuit board manufacturer will construct a new plant. The potential sites have the…

Q: An injection-molding machine has a first cost of $1,050,000 and a salvage value of $225,000 in any…

A: Given, First Cost= $1,050,000 Salvage Value= $225,000 Maintenance & Operating Cost= $235,000…

Q: You are evaluating two different silicon wafer milling machines. The Techron I costs $255,000, has a…

A: Equated annual cost The equated annual cost method is the total cost incurred by the company…

Q: A manufacturing company is considering a capacity expansion investment at the cost of $250,000. The…

A: Calculate the number of units as follows: Number of units is 38,125

Q: You are evaluating two different silicon wafer milling machines. The Techron I costs $213,000, has a…

A: Investment = -213,000 Depreciation amount = Acquiring Value - Salvage Value Depreciation amount =…

Q: You are evaluating two different silicon wafer milling machines. The Techron I costs $300,000, has a…

A: Calculation of EAC of Techron I and Techron II:The EAC is calculated using a excel spreadsheet. The…

Q: You are evaluating two different silicon wafer milling machines. The Techron I costs $288,000, has a…

Q: Your company is considering the development of a new product. In evaluating the proposed project,…

A: Note: This question has four subparts. The first three have been answered below:

Q: A company is considering constructing a plant to manufacture a proposed new product. The land costs…

A: Capital Budgeting techniques: Managers use capital budgeting techniques to evaluate proposed…

Q: piece of new equipment has been proposed by engineers to increase the productivity of a certain…

Q: If your tax rate is 35 percent and your discount rate is 14 percent, compute the EAC for both…

A: The yearly cost of owning and running an asset over its estimated life is called equivalent annual…

Q: A company is considering constructing a plant to manufacture a proposed new product. The land costs…

A: Cash Flow Diagram: It is the diagram where income and expenses are visually represented over some…

Q: A piece of new equipment has been proposed by engineers to increase the productivity of a certain…

A: The internal rate of return is the capital budgeting technique used to calculate the rate at which…

Q: ear after extra operating costs

A: Given information : Year Cash flows 0 -25000 1 8000 2 8000 3 8000 4 8000 5 13000…

Q: The equivalent annual worth of the process currently used in manufacturing motion controllers is AW…

A: For evaluating the alternatives for the selection of one alternative, we can use the net present…

Q: You are evaluating two different silicon wafer milling machines. The Techron I costs $265,000, has a…

A: The data and working calculations are given in the following table Techron 1 year 0…

Q: A retrofitted space-heating system is being considered for a small office building. The system can…

A: Given Data: Cost: Heating System = $142,000 Additional operating and Maintenance cost = $15,600…

Q: You are evaluating two different silicon wafer milling machines. The Techron I costs $249,000, has a…

A: The question is based on the concept of Financial Management.

Q: You are considering making an $80,000 investment in a process improvement project. Revenues are…

A: Annual Equivalent worth of the project is the net present value of cash flows divided by equivalent…

Q: Assume that United Technologies is evaluating a proposal to change the company's manual design…

A: Calculation of depreciation and net book value As given in the question depreciation method is…

Q: You are considering making an $80,000 investment in a process improvement project. Revenues are…

A: To compute the annual equivalent worth (AEW), we will first compute the NPV and then use the PMT…

Q: Consider a new electric forklift truck that would cost $18,000, have operating costs of $1,000 in…

A: Efficiency and profitability is depends upon the machine. Effective production provide high…

Q: Old Southwest Canning Co. has determined that any one of four machines can be used in its…

A: The rate of return analysis is done to assess the net gain or loss on the investment over the period…

Q: A newly hired Sanitary Engineer was made to evaluate the following conditions; An equipment package…

A: Concept. Equivalent annual cost is annual cost of owning and maintaining asset determined by…

Q: A piece of new equipment has been proposed by engineers to increase the productivity of a certain…

A: The present value of the cash flows means the discounted values of cash flows as if they happen to…

Q: erating cost

Q: compute the EAC for both machines

A: EAC stands for Equivalent Annual Cost. It is the annual cost which is incurred for a project. To…

Q: A company is considering constructing a plant to manufacture a proposed new product. The land costs…

A: First calculate total initial investment as follows: Total initial investment = land cost +…

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

An equipment costing $57,500 is being considered for a production process at Dew Chemicals. The expected benefits per year is $4,500 and estimated salvage value is $10,000. Determine the rate of return the company can get in this equipment proposal. Equipment life = 15 years.

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Answer)

VIEW

Working Note:

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

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.
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?
Average rate of returncost savings Maui Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of 125,000 with a 15,000 residual value and an eight-year life. The equipment will replace one employee who has an average wage of 28,000 per year. In addition, the equipment will have operating and energy costs of 5,150 per year. Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment.
Consolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and provide the following cash flows over the next five years: $88,000, 92,000, $91,000, $72,000, and $71,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel, see Appendix C.
Manzer Enterprises is considering two independent investments: A new automated materials handling system that costs 900,000 and will produce net cash inflows of 300,000 at the end of each year for the next four years. A computer-aided manufacturing system that costs 775,000 and will produce labor savings of 400,000 and 500,000 at the end of the first year and second year, respectively. Manzer has a cost of capital of 8 percent. Required: 1. Calculate the IRR for the first investment and determine if it is acceptable or not. 2. Calculate the IRR of the second investment and comment on its acceptability. Use 12 percent as the first guess. 3. What if the cash flows for the first investment are 250,000 instead of 300,000?
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?
A restaurant is considering the purchase of new tables and chairs for their dining room with an initial investment cost of $515,000, and the restaurant expects an annual net cash flow of $103,000 per year. What is the payback period?
Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $17 million, and production and sales will require an initial $5 million investment in net operating working capital. The company’s tax rate is 25%. What is the initial investment outlay? The company spent and expensed $150,000 on research related to the new product last year. What is the initial investment outlay? Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. What is the initial investment outlay?
Home Garden Inc. is considering the construction of a distribution warehouse in West Virginia to service its east coast stores based on the following estimates: a. Determine the net present value of building the warehouse, assuming a construction cost of 20,000,000, an annual net cost savings of 4,000,000, and a desired rate of return of 14%. Use the present value tables provided in Appendix A. b. Determine the net present value of building the warehouse, assuming a construction cost of 25,000,000, an annual net cost savings of 2,500,000, and a desired rate of return of 14%. Use the present value tables provided in Appendix A. c. Interpret the results of parts (a) and (b).