Please do not give solution in image format thanku Carlota is hoping that an investment of$30,000 will provide additional revenue tothe store of $18,000 per year for 3 years. Herpartner in crime, Kyle, is confident that alarger investment of $40,000 will be requiredto bring in a steady flow of $23,000 in newrevenue per year for 3 years. Determine thediscounted payback period for eachinvestment (using before-tax cash flows). Thecompany's required rate of return is 9%.Whose investment appears to better use

The Discounted Payback Period is a financial metric used to evaluate the time it takes for an…

Answered: Carlota is hoping that an investment of…

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 2CE

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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?
Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required: 1. Patz Corporation is considering the purchase of a computer-aided manufacturing system. The cash benefits will be 800,000 per year. The system costs 4,000,000 and will last eight years. Compute the NPV assuming a discount rate of 10 percent. Should the company buy the new system? 2. Sterling Wetzel has just invested 270,000 in a restaurant specializing in German food. He expects to receive 43,470 per year for the next eight years. His cost of capital is 5.5 percent. Compute the internal rate of return. Did Sterling make a good decision?
Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?
Bouvier Restaurant is considering an investment in a grill that costs $140,000, and will produce annual net cash flows of $21,950 for 8 years. The required rate of return is 6%. Compute the net present value of this investment to determine whether Bouvier should invest in the grill.
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?
Project B cost $5,000 and will generate after-tax net cash inflows of $500 in year one, $1,200 in year two, $2,000 in year three. $2,500 in year four, and $2,000 in year five. What is the NPV using 8% as the discount rate? For further instructions on net present value in Excel, see Appendix C.
Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a net cash inflow one year from now of 810,000. Assume the cost of capital is 10 percent. Required: 1. Break the 810,000 future cash inflow into three components: a. The return of the original investment b. The cost of capital c. The profit earned on the investment 2. Now, compute the present value of the profit earned on the investment. 3. Compute the NPV of the investment. Compare this with the present value of the profit computed in Requirement 2. What does this tell you about the meaning of NPV?
A grocery store is considering the purchase of a new refrigeration unit with an Initial Investment of $412,000, and the store expects a return of $100,000 in year one, $72000 in years two and three, $65,000 in years four and five, and $38,000 in year six and beyond, what is the payback period?
Laura is hoping that an investment of $30,200 will provide additional revenue to the store of $18,100 per year for 3 years. Her partner in crime, Kevin, is confident that a larger investment of $40,000 will be required to bring in a steady flow of $23,200 in new revenue per year for 3 years.Determine the discounted payback period for each investment (using before-tax cash flows). The company’s required rate of return is 9%. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answers to 2 decimal places e.g. 15.25.)Click here to view the factor table Laura Kevin Discounted payback period enter discounted payback period rounded to 2 decimal places years enter discounted payback period rounded to 2 decimal places years Whose investment appears to better use the company’s resources?select an option
Elaine is the CEO of Vandelay Industries and wants to create a sinking fund to make a purchase of new technology in three years. She anticipates this capital expense will be $20,000. If the sinking fund earns at an annual rate of 5% compunded quarterly, determine the quarterly installment that should be deposited into the fund.
Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows. Campbell Manufacturing is considering the purchase of a new welding system. The cash benefits will be $480,000 per year. The system costs $1,650,000 and will last 10 years. Evee Cardenas is interested in investing in a women's specialty shop. The cost of the investment is $230,000. She estimates that the return from owning her own shop will be $55,000 per year. She estimates that the shop will have a useful life of 6 years. Barker Company calculated the NPV of a project and found it to be $63,900. The project's life was estimated to be 8 years. The required rate of return used for the NPV calculation was 10%. The project was expected to produce annual after-tax cash flows of $135,000. Required: 1. Compute the NPV for Campbell Manufacturing, assuming a discount rate of 12%. If required, round all present value calculations to the nearest dollar. Use the minus sign to indicate a…
Mariam Alikozay is considering opening a cold storage refrigeration business. She would invest $50,000 to purchase equipment and furnishings and another $100,000 for inventories and other working capital needs. Rent on the building used by the business will be $25,000 per year. In addition to building rent, other annual cash outflows for operating costs will amount to $44,000. She estimates that the annual cash inflow from the business will amount to $100,000. Mariam plans to operate the business for only six years. She estimates that the equipment and furnishings could be sold at that time for about 10% of its original cost. The discount rate is 16%. Compute the net present value of this investment. Please post in word , not picture

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