6Check my work mode: This shows what is correct or incorrect for the work you have completed so far. It does not indicate compleProblem 6-30 Mutually exclusive investments and project livesAs a result of improvements in product engineering. United Automation is able to sell one of its two milling machines. Both machinesperform the same function but differ in age. The newer machine could be sold today for $77.000. Its operating costs are $23,600 ayear, but at the end of five years, the machine will require a $18.200 overhaul (which is tax deductible) Thereafter operating costs willbe $31,800 until the machine is finally sold in year 10 for $7700The older machine could be sold today for $26,800 if it is kept, it will need an immediate $29,000 (tax-deductible) overhaulThereafter, operating costs will be $38,000 a year until the machine is finally sold in year 5 for $7700Both machines are fully depreciated for tax purposes. The company pays tax at 21% Cash flows have been forecasted in real termsThe real cost of capital is 10%. Calculate the equivalent annual costs for selling the new machine and for selling the old machineNote: Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal placesb. Which machine should United Automation sell?DAnswer is complete but not entirely correct,Equivalent AnnualCostR

We first need to determine the NPV of costs of each of the mill. EAC is the NPV of the project…

Answered: Calculate the equivalent annual costs…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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7. A company is considering a £70,000 investment in a machine that would produce 10,000 items per year for 3 years before being sold for £10,000; these would incur £7 of variable costs and sell for £12 each. Extra fixed costs incurred would be £23,000 pa. Adrian has 10% cost of capital and has calculated the NPV to be £4,632. Tax can be ignored. What is the sensitivity of the decision to changes in the residual value of the machine? A) 6.2% B) 6.6% C) 46.3% D) 61.7%
NEED ASAP!!! OWN SOLUTION NOT FROM OTHER SITES. THANKS The management of KC Company is considering the purchase of a $27.000 machine that would reduce operating costs by $7,000 per year. At the end of the machine's five-year useful life, it will have zero scrap value. The company's required rate of return is 12%. Determine the net present value of the investment in the machine. look for the attachment CHOICES: a) 30,917.8 b) 30,458.65 c) 29,352.6
ANSWER IS 9%. PLEASE SHOW YOUR SOLUTION MANUALLY. (don't use excel or financial calculator) Michael Company is considering the purchase of new computer equipment to improve its production scheduling. This new equipment will cost $300,000, with working capital of $25,000 to be committed for the life of the asset. The equipment will have an estimated useful life of four years, with no residual (salvage) value. Michael Company uses the straight-line depreciation method. Management estimates that the equipment will reduce scheduling costs by $64,800 after-tax per year. In addition to the cost savings, the equipment will provide a tax shield based on depreciation. Michael Company has an average income tax rate of 40%, and a minimum required return for similar investments of 9.5%. Determine the internal rate of return (IRR)
2. Trecor Trecor is a computer accessories manufacturer. It plans to launch a new product which will necessitate buying a new machine. The machine will cost £250,000 and will be sold for £150,000 at the end of the product life. The company use straight line depreciation. Sales volumes are anticipated to be 35,000, 40,000, 45,000 and 25,000 for the 4 years of the product life. Each item will sell for £12 and unit variable costs will be £7.80; both of these are in current terms. Additional fixed costs relating to this investment have been estimated at £85,000 pa; this includes an absorption of fixed office overheads (£10,000) which have been allocated to the project. The selling price will inflate at 3% per annum and the variable costs at 4% per annum, while the fixed costs will not change. The company has a nominal cost of capital of 15% and general inflation is forecast to be 5% pa for the next three years. Working capital equal to 5% of sales revenue is required at the start of each…
6) Plum plc wishes to replace its existing pressing machine with a new model immediately. The new model would be replaced by the same model. Three new models are available as follows: Model I II III Purchase price £50,000 £40,000 £70,000 Estimated life 5 years 4 years 6 years Annual running costs (Payable at the end of each year) £4,000. £6,000 £3,500 Plum plc has a cost of capital of 10% per annum. Which new model should Plum plc choose, and what replacement policy should it follow if it wishes to minimise the present value of its costs? A) Purchase model I and replace every five years B) Purchase model II and replace every four years C) Purchase model III and replace every six years
Please answers questions in bold Q1 The production department of Y Company is planning to purchase a new machine to improve product quality. The company’s management accountant is currently evaluating two options- Buy the machine OR Rent it. Following information is available: The company has to pay £3,200 to set up the machine. Insurance cost £450 per annum. If it is bought, the new machine is depreciated on reducing balance basis at the rate of 25%. After various calculations, the company has to pay £4,200 maintenance cost every year and estimated repair cost would be £300 per year. The firm will have to sell old machines, which had cost £65,000 six years ago. Apart from the above information, the £500 of delivery cost is incurred for this purchase option. If it is rented, £ 4,650 per year to pay as rent. There is no cost for repair and maintenance. However, the firm is required to pay the administration charge of £650 with this rent option. For rent option, the delivery cost…
choose the best answer (mcqs) just choose the no need of any explanation 1) Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $498,000 or a new model 220 machine costing $469,000 to replace a machine that was purchased 6 years ago for $453,000. The old machine was used to make product I43L until it broke down last week. Unfortunately, the old machine cannot be repaired.Management has decided to buy the new model 220 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to continue making product I43L.Management also considered, but rejected, the alternative of simply dropping product I43L. If that were done, instead of investing $340,000 in the new machine, the money could be invested in a project that would return a total of $478,000.In making the decision to buy the model 220 machine rather than the model 370 machine, the differential cost was: A $29,000 B $45,000 C $25,000…
Question A .A machine is purchased and depreciated over four years. The tax rate is 21% and the project's cost of capital is 10.50%. What is the after tax salvage value if the machine is purchased today for $690,000 and sold for $175,000 after three years? Multiple Choice $138,250 $174,475 $189,450 $174,900 Full explain this question and text typing work only We should answer our question within 2 hours takes more time then we will reduce Rating Dont ignore this line
6. Required information [The following information applies to the questions displayed below.]Beacon Company is considering automating its production facility. The initial investment in automation would be $12.39 million, and the equipment has a useful life of 10 years with a residual value of $1,090,000. The company will use straight-line depreciation. Beacon could expect a production increase of 34,000 units per year and a reduction of 20 percent in the labor cost per unit. Current (no automation) 75,000 units Current (no automation) 75,000 units Proposed (automation) 109,000 units Proposed (automation) 109,000 units Production and sales volume Per Unit Total Per Unit Total Sales revenue $92 $ ? $ 92 $? Variable costs Direct materials $17 $17 Direct labor 20 ? Variable manufacturing overhead 12 12 Total variable manufacturing costs 49 ? Contribution margin…
38) You are evaluating a potential investment in equipment. The equipment's basic price is $138,000, and shipping costs will be $4,100. It will cost another $20,700 to modify it for special use by your firm, and an additional $6,900 to install it. The equipment falls in the MACRS 3-year class that allows depreciation of 33% the first year, 45% the second year, 15% the third year, and 7% the fourth year. You expect to sell the equipment for 22,100 at the end of three years. The equipment is expected to generate revenues of $131,000 per year with annual operating costs of $67,000. The firm's marginal tax rate is 25.0%. What is the value of the after-tax cash flow associated with the sale of the equipment? $16,575 $19,545 $10,221 $7,666 $9,324
3. Company O has a new product that has the following cost per unit: direct materials - $10, direct labor - $7, and overhead - $3. If the sales manager wants to achieve a gross margin of 25% of cost for the particular product. What would be the selling price per unit?4. Company H acquired an equipment on June 1, 2020 amounting to $35,000 with an estimated useful life of 5 years. What would be the reported carrying value of the equipment on December 31, 2021 if the residual value at the end of 5 years is $5,000?5. On March 1, 2019, Company B issued $1,000,000, 10 years, 12% bonds at 103 excluding accrued interest. The bonds are dated January 1, 2019 and will mature on January 1, 2029. The interest is payable semi-annually on January 1 and July 1 of each year. Company B paid transaction costs amounting to $50,000. How much would be the net cash receipts of Company B as a result of the bond issuance?
5. Required information [The following information applies to the questions displayed below.]Beacon Company is considering automating its production facility. The initial investment in automation would be $12.39 million, and the equipment has a useful life of 10 years with a residual value of $1,090,000. The company will use straight-line depreciation. Beacon could expect a production increase of 34,000 units per year and a reduction of 20 percent in the labor cost per unit. Current (no automation) 75,000 units Current (no automation) 75,000 units Proposed (automation) 109,000 units Proposed (automation) 109,000 units Production and sales volume Per Unit Total Per Unit Total Sales revenue $92 $ ? $ 92 $? Variable costs Direct materials $17 $17 Direct labor 20 ? Variable manufacturing overhead 12 12 Total variable manufacturing costs 49 ? Contribution margin $43 ? $47 ? Fixed manufacturing costs $ 1,100,000 $ 2,270,000…

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Calculate the equivalent annual costs for selling the new machine and for selling the old machine Note: Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places b. Which machine should United Automation sell?