QUESTION 4Max Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flowof $58540. The equipment will have an initial cost of $190150 and have a 5-year life. The salvage value of the equipment is estimated to be $23100.Factors to use for n=5, 1=10% (DO NOT USE ANY OTHER FACTORS OR EQUATIONS)Present Value of an Annuity of $1Present Value of $13.79080.62096.10511.6105Future Value of an Annuity of $1Future Value of $1If the hurdle rate is 10%, what is the approximate net present value? Ignore income taxes.

The profitability of an investment or project is evaluated using a financial metric called Net…

Answered: If the hurdle rate is 10%, what is the…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 13EA: Jullo Company is considering the purchase of a new bubble packaging machine. If the machine will...

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Similar questions

Jullo Company is considering the purchase of a new bubble packaging machine. If the machine will provide $20,000 annual savings for 10 years and can be sold for $50,000 at the end of the period, what is the present value of the machine investment at a 9% interest rate with savings realized at year end?
Net present value methodannuity for a service company Amenity Hotels Inc. is considering the construction of a new hotel for 50 million. The expected life of the hotel is 25 years, with no residual value. The hotel is expected to earn revenues of 30 million per year. Total expenses, including depreciation, are expected to be 23 million per year. Amenity Hotels management has set a minimum acceptable rate of return of 14%. a. Determine the equal annual net cash flows from operating the hotel. b. Compute the net present value of the new hotel, using the present value of an annuity table found in Appendix A. Round to the nearest million dollars. c. Does your analysis support construction of the new hotel? Explain.
Asset Purchase Price BWP Inc. is considering the purchase of an asset. BWPs required rate of return on new assets is 12%. The expected net cash inflows generated by the new asset are as follows: Required: Given that the net cash inflows can be realized, what is the maximum amount BWP should be willing to pay for the new asset? If BWP pays that amount, at what amount should BWP recognize the asset on the balance sheet? Assume that each cash inflow occurs at the end of the year. (Contributed by Norma C. Powell)
REPLACEMENT CHAIN The Lesseig Company has an opportunity to invest in one of two mutually exclusive machines that will produce a product the company will need for the next 8 years. Machine A costs 8.9 million but will provide after-tax inflows of 4.5 million per year for 4 years. If Machine A were replaced, its cost would be 9.8 million due to inflation and its cash inflows would increase to 4.7 million due to production efficiencies. Machine B costs 13.9 million and will provide after-tax inflows of 4.3 million per year for 8 years. If the WACC is 9%, which machine should be acquired? Explain.
Answer number 4 only. You are planning to invest in a machine for your manufacturing facility. The machine costs P55,400, and it has an expected useful life of 5 years. You estimate that the machine will generate an annual net cash flow (revenue minus expenses) of P21,000. The interest rate is 5% per year. 1. Disregarding the revenue, what is the future value of the machine cost? 2. What is the present value of the revenue in its 5 years of useful life? Is it worth the investment compared to the machine cost? 3. What is the future value of the revenue in its 5 years of useful life? is it worth the investment compared to the future value of the machine cost? 4. Suppose that at there is a maintenance expense of P3,000 at the first year, P3,500 at the second year, P4,000 at the third year, P4,500 at the fourth year, and P5,000 at the last year. What is the present value of the maintenance expense
Question 2) Dartis Company is considering investing in a specialized equipment costing $800,000. The equipment has a useful life of 5 years and a residual value of $55,000. Depreciation is calculated using the straight-line method. The expected net cash inflows from the investment are given below. Year 1 $200,000 2 150,000 3 260,000 4 95,000 5 95,000 What is the accounting rate of return on the investment?
Question 2 New Age Ltd is considering investing in one of the two following projects to buy a new assembly line. Each option will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 9%. The cash flows of the projects are provided below. Assembly Line 1 Assembly Line 2 Cost $386,000 $425,000 Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 136 000 213 000 283 000 215 000 175 000 197 000 184 000 186 000 265 000 263 000 Required: Identify which option of assembly line the company should accept based on the NPV method (Note: Please round up the result of each calculation of PV to 2 decimal places only for simplification) Identify which option of assembly line the company should accept based on the Profitability Index method.

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