It was becoming clear to Swifty Corp's managers that the company's furnace was reaching the end of its useful life (a little sooner than they had hoped). There is a feasible option for an overhaul on the existing furnace, which would extend its useful life and not break the bank. Or the company could go all-in and just replace the old furnace with a more efficient model. Additional information for each option is as follows. 1 2 Overhaul existing furnace. Initial cost of $5,100; annual operating costs would be $12,000; expected life of 10 years with no salvage value. (a) Replace with new. Initial cost of $11,800; annual operating costs would be $9,320; under full warranty for 10 years with no expected salvage value. Swifty estimates an effective tax rate of 24% and typically requires at least a 4% rate of return. Click here to view the factor table Calculate the NPV of the overhaul option, keeping in mind that the current book value of the existing furnace is still $1,500. (Round present value factor calculations to 5 decimal places, eg. 1.25124 and final answer to 2 decimal places eg. 5,125.36. Enter negative amounts using either a negative sign preceding the number, eg -5,125.36 or parentheses, e.g. (5,125.36).) NPV $
It was becoming clear to Swifty Corp's managers that the company's furnace was reaching the end of its useful life (a little sooner than they had hoped). There is a feasible option for an overhaul on the existing furnace, which would extend its useful life and not break the bank. Or the company could go all-in and just replace the old furnace with a more efficient model. Additional information for each option is as follows. 1 2 Overhaul existing furnace. Initial cost of $5,100; annual operating costs would be $12,000; expected life of 10 years with no salvage value. (a) Replace with new. Initial cost of $11,800; annual operating costs would be $9,320; under full warranty for 10 years with no expected salvage value. Swifty estimates an effective tax rate of 24% and typically requires at least a 4% rate of return. Click here to view the factor table Calculate the NPV of the overhaul option, keeping in mind that the current book value of the existing furnace is still $1,500. (Round present value factor calculations to 5 decimal places, eg. 1.25124 and final answer to 2 decimal places eg. 5,125.36. Enter negative amounts using either a negative sign preceding the number, eg -5,125.36 or parentheses, e.g. (5,125.36).) NPV $
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 20P: The Aubey Coffee Company is evaluating the within-plant distribution system for its new roasting,...
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