Titan manufactures and sells gas-powered electricity generators. It canpurchase a new line of fuel injectors from either of two companies: A orB. The AOC and annual savings estimates are available, but the savingsestimate is unreliable at this time. Use an AW analysis at MARR = 10%per year to determine if the selection between A and B changes whenthe estimated savings varies as much as ±40% from the best estimates,and if so, at what percentage in the estimate? Use tabulated factors.ABCompanyFirst cost, $-54,000-47,500AOC, $ per year-7,500-8,000Savings best estimate, $ per year15,00013,000Salvage value, $5,0003,700Life, years5(Click to select)the selection between A and B (Click to select)9when the estimated savings is (Click to select)V

AW analysis we calculate the annual equivalent cost of all cost that is equivalent to all cost and…

Answered: manufactures and sells gas-powered…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 8P: The Rodriguez Company is considering an average-risk investment in a mineral water spring project...

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Flanders Manufacturing is considering purchasing a new machine that will reduce variable costs per part produced by $0.15. The machine will increase fixed costs by $18,250 per year. The information they will use to consider these changes is shown here.
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?
The J.R. Ryland Computer Company is considering a plant expansion to enable the company to begin production of a new computer product. The companys president must determine whether to make the expansion a medium- or large-scale project. Demand for the new product is uncertain, which for planning purposes may be low demand, medium demand, or high demand. The probability estimates for demand are 0.20, 0.50, and 0.30, respectively. Letting x and y indicate the annual profit in thousands of dollars, the firms planners developed the following profit forecasts for the medium-and large-scale expansion projects. a. Compute the expected value for the profit associated with the two expansion alternatives. Which decision is preferred for the objective of maximizing the expected profit? b. Compute the variance for the profit associated with the two expansion alternatives. Which decision is preferred for the objective of minimizing the risk or uncertainty?
Titan manufactures and sells gas-powered electricity generators. It can purchase a new line of fuel injectors from either of two companies. Costand savings estimates are available, but the savings estimates are unreliable at this time. Use an AW analysis at MARR = 10% per year to determineif the selection between company A and B changes when the estimated savings varies as much as 40% from the best estimates. Use tabulated factors or a spreadsheet, as requested by your instructor.
The International Parcel Service has installed a new radio frequency identification system to help reduce the number of packages that are incorrectly delivered. The capital investment in the system is $65,000, and the projected annual savings are tabled below. The system’s market value at the EOY five is negligible, and the MARR is 18% per year. Solve, a. What is the FW of this investment? b. What is the IRR of the system? c. What is the discounted payback period for this investment?
Home Automation is considering an investment of $500,000 in a new product line. The company will make the investment only if it will result in a rate of return of 15% per year or higher. If the revenue is expected to be between $138,000 and $165,000 per year for 5 years, use a present worth analysis to determine if the decision to invest is sensitive to the projected range of revenue.
Bailey, Inc., is considering buying a new gang punch that would allow them to produce circuit boards more efficiently. The punch has a first cost of $135,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value. Labor costs would increase $4,500 per year using the gang punch, but raw material costs would decrease $15,500 per year. MARR is 5%/year. What is the internal rate of return of this investment? % Carry all interim calculations to 5 decimal places and then round your final answer to 1 decimal place. The tolerance is ±0.2.
A computer call center is going to replace all of its incandescent lamps with more energy-efficient fluorescent lighting fixtures. The total energy savings are estimated to be $1,875 per year, and the cost of purchasing and installing the fluorescent fixtures is $4,900. The study period is five years, and terminal market values for the fixtures are negligible. Solve, a. What is the IRR of this investment? b. What is the simple payback period of the investment? c. Is there a conflict in the answers to Parts (a) and (b)?List your assumptions. d. The simple payback “rate of return” is 1/θ. How close does this metric come to matching your answer in Part (a)?
Suppose that, the carburettors were purchased, and the company could use the freed capacityto launch a new product. It is expected that the segment margin of the new product would be£150,000 per year. Discuss whether the company should accept the offer to buy thecarburettors for £35.00 per unit? (Show all computations)
OptiLux is considering investing in an automated manufacturing system. The system requires an initial investment of $4.6 million, has a 20-year life, and will have zero salvage value. If the system is implemented, the company will save $700,000 per year in direct labor costs. The company requires a 12% return from its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)a. Compute the proposed investment’s net present value.b. Using the answer from part a, is the investment’s internal rate of return higher or lower than 12%? Hint: It is not necessary to compute IRR to answer this question.
Bailey, Inc., is considering buying a new gang punch that would allow them to produce circuit boards more efficiently. The punch has a first cost of $90,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value. Labor costs would increase $1,500 per year using the gang punch, but raw material costs would decrease $11,500 per year. MARR is 5%/year. What is the internal rate of return of this investment?
Ang Electronics, Inc., has developed a new DVDR. If the DVDR is successful, the present value of the payoff (when the product is brought to market) is $34.8 million. If the DVDR fails, the present value of the payoff is $12.8 million. If the product goes directly to market, there is a 40 percent chance of success. Alternatively, the company can delay the launch by one year and spend $1.38 million to test market the DVDR. Test marketing would allow the firm to improve the product and increase the probability of success to 70 percent. The appropriate discount rate is 12 percent. Calculate the NPV of going directly to market and the NPV of test marketing before going to market.

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