Barron Chemical used a thermoplastic polymer to enhance the appearance of certain RV panels. The initial cost of one process was $130,000 with annualcosts of $49,000. Revenues were $78,000 in year 1, increasing by $1000 per year. A salvage value of $23,000 was realized when the process was discontinued after 8 years. What rate of return did the company make on the process?
Q: You are evaluating two different silicon wafer milling machines. The Techron I costs $265,000, has a…
A: The cost related to owning, operating, and maintaining an asset over its life is referred to as EAC.…
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: Two processes can be used for producing a polymer that reduces friction loss in engines. Process T…
A: In above question, the following equation for present worth calculation For process T =-Frist cost…
Q: A contractor has purchased a wheel loader for $115,000 and plans to use it 2,000 hours per year. The…
A:
Q: An oil refinery finds that it is necessary to treat the waste liquids from a new process before…
A: Present Worth of in-house treatment=Present worth of the uniform annuity + present worth of the…
Q: A small chemical manufacture company needs to replace an old high-shear mixer. Two different models…
A: Annual equivalent cost is that cost which is incurred on an annual basis for some project or some…
Q: Four years ago, a firm purchased an industrial batch oven for $23,000. The oven had an estimated…
A: Computation:
Q: The TechHelp Company produces and sells 7,500 modular computer desks per year at a selling price of…
A: The most important factor while deciding to choose between two available alternatives is relevant…
Q: Four years ago, an ore-crushing unit was installed at a mine which cost P81,000. Annual operating…
A: Capital Budgeting are the long term decisions an entity needs to take for the maximum benefits from…
Q: A construction company operates a bulldozer that initially costs $28,000. The first year maintenance…
A: Salvage value is the only cash inflow present in this question. So, salvage value shall be reduced…
Q: Two processes can be used for producing a polymer that reduces friction loss in engines. Process T…
A: We need to use the following equation for present worth calculation For process T =-Frist cost…
Q: Your firm is replacing a manually-operated machine with a fully automated machine. The old machine…
A: The net amount of cash and cash equivalents that are transferred into and out of a business is…
Q: Swagelok Enterprises is a manufacturer of miniature fittings and valves. Over a 5-year period, the…
A: A discount rate at which the net present worth of an investment is equal to zero is term as internal…
Q: Swagelok Enterprises is a manufacturer of miniature fittings and valves. Over a 5-year period, the…
A: IRR is the rate of return which makes NPV is zero.
Q: Raytheon wishes to use an automated environmental chamber in the manufacture of electronic…
A: Since you have posted a question with multiple sub-parts, we will solve first three subparts for…
Q: It is planning to reduce its labor costs by automating a critical task that is currently performed…
A: Present value means the actual amount is adjusted with the interest rate so as to get the present…
Q: A piece of new equipment has been proposed by engineers to increase the productivity of a certain…
A: The following calculations are done to check the feasibility of the purchase of new equipment for…
Q: A company is currently producing chemical compounds by a process installed 10 years ago at a cost of…
A: The annual cost (AC) of the defender can be calculated as follows. The calculated value shows the…
Q: Dexcon Technologies, Inc., is evaluating two alternatives to produce its new plastic filament with…
A: Capital budgeting refers to the evaluation of the profitability of potential investment and projects…
Q: Barron Chemical uses a thermoplastic polymer to enhance the appearance of certain RV panels. The…
A: A discount rate at which the net present worth of an investment is equal to zero is term as internal…
Q: Four years ago, an ore-crushing unit was installed at a mine which cost P81,000. Annual operating…
A: Computation of Annual cost: ●Old unit: Depreciation=[P26,000 - (81,000*0.12)]/[(1+i)n - 1)/ i]…
Q: YZ Company currently uses four machines to produce 400,000 units annually. The machines were bought…
A: Annual after tax cash flow the operating cash flow available after tax and depreciation.
Q: A small chemical manufacture company needs to replace an old high-shear mixer. Two different models…
A: Equivalent annual cost (EAC) is the estimate of the annual costs that a project incurs during its…
Q: A manufacturing company is considering acquiring a new injection-molding machine ata cost of…
A: The NPV method is used to calculate a project’s profitability based on the return that the company…
Q: A machine purchased a year ago for $85,000 costs more to operate than anticipated. At the time of…
A: Present value (PV) is the current value of a future sum of money or a stream of cash flows, given a…
Q: A company has decided to replace its inspection machine with an advanced one. The advanced machine…
A: The question is based on the concept of Cost Accounting.
Q: Barron Chemical uses a thermoplastic polymer to enhance the appearance of certain RV panels. The…
A: Rate of return = IRR = the rate at which NPV is nil. The cash flows are: Year Costs Revenues…
Q: CariTech (CT) Company produces and sells 7,000 Special purpose chairs per year at a selling price of…
A: The question is based on the concept of Financial Management.
Q: Sandersen Meat Processors has asked its lead process engineer to evaluate two different types of…
A: Incrementa cash flow represents the cash flow that is required by the company in order to start a…
Q: The plant manager asked you to do a cost analysis to determine when currently owned equipment should…
A: The question is based on the concept of replacement analysis. The replacement analysis is a…
Q: CTI Corporation purchased a special-purpose turnkey stamping machine four years ago for $18,000. It…
A: Old machine: New machine:
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: A construction company is evaluating the purchase of a new concrete mixer with hydraulic hopper and…
A: In the given question we are provided with the information of a construction company that is…
Q: A conveyor system was purchased three years ago for $60,000 with an expected useful life of 10 years…
A: in this we have to calculate present value of both defender and challenger.
Q: Two processes can be used for producing a polymer that reduces friction loss in engines. Process T…
A: The comparable uniform yearly worth of all expected gain or income and payments or costs during the…
Q: CariTech (CT) Company produces and sells 7,000 Special purpose chairs per year at a selling price…
A: Here,
Q: A small utility company is considering the purchase of a powerdriven post hole digger. The equipment…
A: A break-even point is that level of production volume at which the business earns zero profit. It is…
Q: EV Box is a manufacturer of electric vehicle charging stations and charging software. The initial…
A: Here, Initial Cost id $130,000 Annual Cost is $49000 Revenues are $78000 in year 1 and thereby…
Q: A machine was purchased 5 years ago for $12,000. At that time, its estimated life was 10 years with…
A: Cash Flow Statement is a part of the Financial Statement of a company. It literally means a…
Q: Barron Chemical uses a thermoplastic polymer to enhance the appearance of certain RV panels. The…
A: Rate of return is IRR of the project
Q: The Everly Equipment Company's flange-lipping machine was purchased 5 years ago for $40,000. It had…
A: Net present value is the difference between the present value of cash inflows and present value of…
Q: Chemco Enterprises is the manufacturer of Ultra-Dry, a hydrophobic coating that will waterproof…
A: The internal rate of return is a capital budgeting technique that evaluates a product or project's…
Q: Swagelok Enterprises is a manufacturer of miniature fittings and valves. Over a 5-year period, the…
A: Rate of return is calculated using IRR
Q: Dexcon Technologies, Inc., is evaluating two alternatives to produce its new plastic filamen with…
A: Solution: - Calculation of present worth for DDM method as follows under: -
Q: Swagelok Enterprises is a manufacturer of miniature fittings and valves. Over a 5- period, the costs…
A: Net cash flow, years 1-4 = Annual revenue - Annual cost = $27,000 - $18,000 = $9,000 In year 0, Net…
Q: A construction company is evaluating the purchase of a new concrete mixer with hydraulic hopper and…
A: In the given question we are provided with the information of a construction company that is…
Barron Chemical used a thermoplastic polymer to enhance the appearance of certain RV panels. The initial cost of one process was $130,000 with annual
costs of $49,000. Revenues were $78,000 in year 1, increasing by $1000 per year. A salvage value of $23,000 was realized when the process was discontinued after 8 years. What
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
- Newmarge Products Inc. is evaluating a new design for one of its manufacturing processes. The new design will eliminate the production of a toxic solid residue. The initial cost of the system is estimated at 860,000 and includes computerized equipment, software, and installation. There is no expected salvage value. The new system has a useful life of 8 years and is projected to produce cash operating savings of 225,000 per year over the old system (reducing labor costs and costs of processing and disposing of toxic waste). The cost of capital is 16%. Required: 1. Compute the NPV of the new system. 2. One year after implementation, the internal audit staff noted the following about the new system: (1) the cost of acquiring the system was 60,000 more than expected due to higher installation costs, and (2) the annual cost savings were 20,000 less than expected because more labor cost was needed than anticipated. Using the changes in expected costs and benefits, compute the NPV as if this information had been available one year ago. Did the company make the right decision? 3. CONCEPTUAL CONNECTION Upon reporting the results mentioned in the postaudit, the marketing manager responded in a memo to the internal audit department indicating that cash inflows also had increased by a net of 60,000 per year because of increased purchases by environmentally sensitive customers. Describe the effect that this has on the analysis in Requirement 2. 4. CONCEPTUAL CONNECTION Why is a postaudit beneficial to a firm?Jonfran Company manufactures three different models of paper shredders including the waste container, which serves as the base. While the shredder heads are different for all three models, the waste container is the same. The number of waste containers that Jonfran will need during the following years is estimated as follows: The equipment used to manufacture the waste container must be replaced because it is broken and cannot be repaired. The new equipment would have a purchase price of 945,000 with terms of 2/10, n/30; the companys policy is to take all purchase discounts. The freight on the equipment would be 11,000, and installation costs would total 22,900. The equipment would be purchased in December 20x4 and placed into service on January 1, 20x5. It would have a five-year economic life and would be treated as three-year property under MACRS. This equipment is expected to have a salvage value of 12,000 at the end of its economic life in 20x9. The new equipment would be more efficient than the old equipment, resulting in a 25 percent reduction in both direct materials and variable overhead. The savings in direct materials would result in an additional one-time decrease in working capital requirements of 2,500, resulting from a reduction in direct material inventories. This working capital reduction would be recognized at the time of equipment acquisition. The old equipment is fully depreciated and is not included in the fixed overhead. The old equipment from the plant can be sold for a salvage amount of 1,500. Rather than replace the equipment, one of Jonfrans production managers has suggested that the waste containers be purchased. One supplier has quoted a price of 27 per container. This price is 8 less than Jonfrans current manufacturing cost, which is as follows: Jonfran uses a plantwide fixed overhead rate in its operations. If the waste containers are purchased outside, the salary and benefits of one supervisor, included in fixed overhead at 45,000, would be eliminated. There would be no other changes in the other cash and noncash items included in fixed overhead except depreciation on the new equipment. Jonfran is subject to a 40 percent tax rate. Management assumes that all cash flows occur at the end of the year and uses a 12 percent after-tax discount rate. Required: 1. Prepare a schedule of cash flows for the make alternative. Calculate the NPV of the make alternative. 2. Prepare a schedule of cash flows for the buy alternative. Calculate the NPV of the buy alternative. 3. Which should Jonfran domake or buy the containers? What qualitative factors should be considered? (CMA adapted)St. Johns River Shipyards welding machine is 15 years old, fully depreciated, and has no salvage value. However, even though it is old, it is still functional as originally designed and can be used for quite a while longer. A new welder will cost 182,500 and have an estimated life of 8 years with no salvage value. The new welder will be much more efficient, however, and this enhanced efficiency will increase earnings before depreciation from 27,000 to 74,000 per year. The new machine will be depreciated over its 5-year MACRS recovery period, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The applicable corporate tax rate is 25%, and the project cost of capital is 12%. What is the NPV if the firm replaces the old welder with the new one?
- Mallette Manufacturing, Inc., produces washing machines, dryers, and dishwashers. Because of increasing competition, Mallette is considering investing in an automated manufacturing system. Since competition is most keen for dishwashers, the production process for this line has been selected for initial evaluation. The automated system for the dishwasher line would replace an existing system (purchased one year ago for 6 million). Although the existing system will be fully depreciated in nine years, it is expected to last another 10 years. The automated system would also have a useful life of 10 years. The existing system is capable of producing 100,000 dishwashers per year. Sales and production data using the existing system are provided by the Accounting Department: All cash expenses with the exception of depreciation, which is 6 per unit. The existing equipment is being depreciated using straight-line with no salvage value considered. The automated system will cost 34 million to purchase, plus an estimated 20 million in software and implementation. (Assume that all investment outlays occur at the beginning of the first year.) If the automated equipment is purchased, the old equipment can be sold for 3 million. The automated system will require fewer parts for production and will produce with less waste. Because of this, the direct material cost per unit will be reduced by 25 percent. Automation will also require fewer support activities, and as a consequence, volume-related overhead will be reduced by 4 per unit and direct fixed overhead (other than depreciation) by 17 per unit. Direct labor is reduced by 60 percent. Assume, for simplicity, that the new investment will be depreciated on a pure straight-line basis for tax purposes with no salvage value. Ignore the half-life convention. The firms cost of capital is 12 percent, but management chooses to use 20 percent as the required rate of return for evaluation of investments. The combined federal and state tax rate is 40 percent. Required: 1. Compute the net present value for the old system and the automated system. Which system would the company choose? 2. Repeat the net present value analysis of Requirement 1, using 12 percent as the discount rate. 3. Upon seeing the projected sales for the old system, the marketing manager commented: Sales of 100,000 units per year cannot be maintained in the current competitive environment for more than one year unless we buy the automated system. The automated system will allow us to compete on the basis of quality and lead time. If we keep the old system, our sales will drop by 10,000 units per year. Repeat the net present value analysis, using this new information and a 12 percent discount rate. 4. An industrial engineer for Mallette noticed that salvage value for the automated equipment had not been included in the analysis. He estimated that the equipment could be sold for 4 million at the end of 10 years. He also estimated that the equipment of the old system would have no salvage value at the end of 10 years. Repeat the net present value analysis using this information, the information in Requirement 3, and a 12 percent discount rate. 5. Given the outcomes of the previous four requirements, comment on the importance of providing accurate inputs for assessing investments in automated manufacturing systems.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?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?
- Thaler Company bought 26,000 of raw materials a year ago in anticipation of producing 5,000 units of a deluxe version of its product to be priced at 75 each. Now the price of the deluxe version has dropped to 35 each, and Thaler is now deciding whether to produce 1,500 units of the deluxe version at a cost of 48,000 or to scrap the project. What is the opportunity cost of this decision? a. 175,000 b. 375,000 c. 48,000 d. 26,000Gimli Miners recently purchased the rights to a diamond mine. It is estimated that there are one million tons of ore within the mine. Gimli paid $23,100,000 for the rights and expects to harvest the ore over the next ten years. The following is the expected extraction for the next five years. Year 1: 50,000 tons Year 2: 90,000 tons Year 3: 100,000 tons Year 4: 110,000 tons Year 5: 130,000 tons Calculate the depletion expense for the next five years, and create the journal entry for year one.Utica Machinery Company purchases an asset for 1,200,000. After the machine has been used for 25,000 hours, the company expects to sell the asset for 150,000. What is the depreciation rate per hour based on activity?
- After discovering a new gold vein in the Colorado mountains, CTC Mining Corporation must decide whether to go ahead and develop the deposit. The most cost-effective method of mining gold is sulfuric acid extraction, a process that could result in environmental damage. Before proceeding with the extraction, CTC must spend 900,000 for new mining equipment and pay 165,000 for its installation. The mined gold will net the firm an estimated 350,000 each year for the 5-year life of the vein. CTCs cost of capital is 14%. For the purposes of this problem, assume that the cash inflows occur at the end of the year. a. What are the projects NPV and IRR? b. Should this project be undertaken if environmental impacts were not a consideration? c. How should environmental effects be considered when evaluating this or any other project? How might these concepts affect the decision in part b?Dunedin Drilling Company recently acquired a new machine at a cost of 350,000. The machine has an estimated useful life of four years or 100,000 hours, and a salvage value of 30,000. This machine will be used 30,000 hours during Year 1, 20,000 hours in Year 2, 40,000 hours in Year 3, and 10,000 hours in Year 4. With DEPREC5 still on the screen, click the Chart sheet tab. This chart shows the accumulated depreciation under all three depreciation methods. Identify below the depreciation method that each represents. Series 1 _____________________ Series 2 _____________________ Series 3 _____________________ When the assignment is complete, close the file without saving it again. Worksheet. The problem thus far has assumed that assets are depreciated a full year in the year acquired. Normally, depreciation begins in the month acquired. For example, an asset acquired at the beginning of April is depreciated for only nine months in the year of acquisition. Modify the DEPREC2 worksheet to include the month of acquisition as an additional item of input. To demonstrate proper handling of this factor on the depreciation schedule, modify the formulas for the first two years. Some of the formulas may not actually need to be revised. Do not modify the formulas for Years 3 through 8 and ignore the numbers shown in those years. Some will be incorrect as will be some of the totals. Preview the printout to make sure that the worksheet will print neatly on one page, and then print the worksheet. Save the completed file as DEPRECT. Hint: Insert the month in row 6 of the Data Section specifying the month by a number (e.g., April is the fourth month of the year). Redo the formulas for Years 1 and 2. For the units of production method, assume no change in the estimated hours for both years. Chart. Using the DEPREC5 file, prepare a line chart or XY chart that plots annual depreciation expense under all three depreciation methods. No Chart Data Table is needed; use the range B29 to E36 on the worksheet as a basis for preparing the chart if you prepare an XY chart. Use C29 to E36 if you prepare a line chart. Enter your name somewhere on the chart. Save the file again as DEPREC5. Print the chart.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?
