Galvanized Products is considering the purchase of a new computer system for their enterprise data management system. The vendor has quoted a purchase price of $100,000. Galvanized Products is planning to borrow 1/4thof the purchase price from a bank at 15% compounded annually. The loan is to be repaid using equal annual payments over a 3-year period The computer system is expected to last 5 years and has a salvage value of S5,000 at that time. Over the 5-year period, Galvanized Products expects to pay a technician $25.000 per year to maintain the system but will save $55.000 per year through increased efficiencies. Galvanized Products uses a MARR of 18Kyear to evaluate investments Click here to access the TVMFactor Table Calculator Part a What is the annual worth of this investment?5

Galvanized Products is considering the purchase of a new computer system for their enterprise data management system. The vendor has quoted a purchase price of $100,000. Galvanized Products is planning to borrow 1/4thof the purchase price from a bank at 15% compounded annually. The loan is to be repaid using equal annual payments over a 3-year period The computer system is expected to last 5 years and has a salvage value of S5,000 at that time. Over the 5-year period, Galvanized Products expects to pay a technician $25.000 per year to maintain the system but will save $55.000 per year through increased efficiencies. Galvanized Products uses a MARR of 18Kyear to evaluate investments Click here to access the TVMFactor Table Calculator Part a What is the annual worth of this investment?5

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 4CE: Manzer Enterprises is considering two independent investments: A new automated materials handling...

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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?
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.
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