Margaret has a project with a $28 000 first cost that returns $5000 per year over its 10-year life. It has a salvage value of $3000 at the end of 10 years. If the MARR is 15 percent, what is the future worth of this project after 10 years? What is the discounted payback period for this project?

Margaret has a project with a $28 000 first cost that returns $5000 per year over its 10-year life. It has a salvage value of $3000 at the end of 10 years. If the MARR is 15 percent, what is the future worth of this project after 10 years? What is the discounted payback period for this project?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 2PA: Jasmine Manufacturing is considering a project that will require an initial investment of $52,000...

See similar textbooks

Related questions

Q: If the interest rate is 8% per year, compounded annually, how much money should the company set…

A: Present value (PV) of money refers to the current price of any future sum of money or streams of…

Q: the first cost of a machine is 50,000 and if has a depreciation of 4,500 per year. if the salvage…

A: Depreciation is decrease in value of an asset over a period of time due to use of asset in business.…

Q: Salalah Methanol Co. has bought some new machinery at a cost of 1250000 OMR. The impact of the new…

A: A capital project is an investment that requires huge capital investment and is expected to be in…

Q: b) Your company has asked you to analyze the purchase of a new machine. The machine will cost…

A: Break event point is where persent value of inflow is equal to persent value of outflow. We hereby…

Q: Margaret has a project with a $28 000 first cost that returns $5000 per year over its 10-year life.…

A: Using then Present value analysis in excel

Q: You have purchased an equipment costing $20,000. The equipment will be used for two years, and at…

A: Calculation of equivalent net savings machine-hours: Answer: Equivalent net savings per…

Q: An investor has invested $250,000 in a new rental property. Her estimated annual costs are $6000 and…

A: Net present worth: It is the present value (PV) of the cash inflows compared to the initial value of…

Q: You are considering the purchase of a new machine for a project. Details of this potential purchase…

A: Cash flow statement considers only cash dealt items.

Q: A company is considering buying a new piece of machinery. the initial cost of the machine is 80,000…

A: The equivalent uniform annual cost (EAC) will represent the total costs of the machine in a form of…

Q: It is estimated that a timber tract will yield an annual profit of P100,000 for 6 years, at the end…

A: The value of an asset purchased should be on par with its future profits and expected return. Thus,…

Q: The CFO of HairBrain Stylists is evaluating a project that costs $42, 000. The project will generate…

A: Net present value (NPV) is the value of the project computed by subtracting present value of future…

Q: JFINEX Corporation is considering a new project that will cost 200,000. It will provide an annual…

A: The NPV can be calculated as the Present Value of cash Inflows-Initial Cost

Q: Margaret has a project with a $28 000 first cost that returms $5000 peryea overits 10-yea life. It…

A: given, initial cost = $28000 n = 10 annual return = $5000 salvage value = $3000 r=5%

Q: A man is planning to invest for a project with a benefit cost ratio of 1.8 and provides annual…

A: Solution:- Benefit cost ratio means the ratio of present value of benefits from a project to present…

Q: Margaret has a project with a $28 000 first cost that returns $5000 per year over its 10-year life.…

A: Present worth is the project is the present value of future cash flows

Q: A business is generating $100,000 annually over 10 years, with a salvage value of $1,000,000 in the…

A: Use the table below: Cost 10.00% Cash flows Year Discounted CF = Cash flow/(1+cost)^year…

Q: Margaret has a project with a $28 000 first cost that returns $5000 per year over its 10-year life.…

A: Cost Accounting: It is the process of collecting, recording, analyzing the cost, summarizing cost,…

Q: Patti's project has an IRR of 15 percent, first cost P, and annual savings A. She observed that the…

A: First cost = P Salvage value = Third of the first cost = P/3 Annual savings = A IRR = i = 15% Let…

Q: You are buying a machine with a down payment of $200,000 and annual payments of $40,000 per year for…

A: The present value of all cost is the net cost of all cost including the down payment and all cost…

Q: You are considering purchasing a dump truck. The truck will cost $45,000 and have operating and…

A: Computation:

Q: Ferguson Company is considering an investment in computer-aided design equipment. The equipment will…

A: Net Present value (NPV) is used to determine the present value of net adjusted cash flows which are…

Q: A project requires you to invest $10,000 now, will generate annual revenues of $1500 for 10 years…

A: Present worth (PW) is a capital budgeting approach that helps in evaluating and comparing the…

Q: A new machine for your company has a first cost of $80,000 and an estimated net salvage value of…

A: Net present value describes the amount of cash flows that need to be calculated at the present…

Q: 5. Margaret has a project with a $28 000 first cost that returns $5000 per year over its 10-year…

A: Given:Initial cost=$28000Annual revenue=$5000Useful life=10 yearsSalvage=$3000MARR=5%To…

Q: The CFO of HairBrain stylists is evaluating a project that costs $42,000. The project will generate…

A: Given information: Project costs $42,000 Cash flow generates $11,000 for 5 years Rate of return is…

Q: a company must buy new safety equipment every 8 years, costing $16,000, with a salvage value of…

Q: Margaret has a project with a $28000 first cost that returns $5000 per year over its 10-year life.…

A: The net present value function or concept can be used to determine the net present value of a future…

Q: A new project will cost $40,000 to fund today, and an additional $40,000 next year. The device…

A: Net Present Value: It helps in analyzing the project's profitability and is computed from the…

Q: per year for the first 10 years and $1000 per year, for the 10 years past the initial maintenance…

A: The current value of a future sum of money or stream of cash flows, given a specified rate of…

Q: Beene Distributing is considering a project that will return $150,000 annually at the end of each…

Q: The required investment cost of a new, large shopping center is $50 million. The salvage value of…

A: Cost of a shopping center= $50 million Salvage value of the project= $20 million Project’s life= 15…

Q: A construction company wishes to buy a fleet of scrapers to be used in a highway project, which will…

A: Time value of money :— According to this concept, value of money in present day is more than the…

Q: Elena's Café is investing in a new commercial refrigeration unit that will cost $40,000. They…

A: The present worth of capital investment is calculated as the difference between the present value of…

Q: A company is trying to decide whether to buy a machine for $ 80,000 which will saved $20000 a year…

A: IRR is the rate of return of a project where the present value of the cost of the project is equal…

Q: Macoupin Mining Inc. must purchase a new coring machine that costs $60,000 and will last 15 years…

A: Information Provided: Costs = $60,000 Salvage value = $12,000 Opearting exp = $9000( first year and…

Q: Margaret has a project with a $28 000 first cost that returns $5000 per year over its 10-year life.…

A: Payback Period: Simple Payback Period: The payback period of an investment is the length of time…

Q: Your firm needs a machine which costs $210,000, and requires $36,000 in maintenance for each year of…

A: Computation of tax shield on depreciation: Depreciation=Cost of asset×Depreciation rate for year…

Q: With the estimates shown below, Sarah needs to determine the trade-in (replacement) value of machine…

A: The question is based on the concept of calculation of annual worth of two machine for replacement…

Q: You invest in a piece of equipment costing $30,000. The equipment will beused for two years, at the…

A: Calculation of the equivalent net savings per machine hour is shown:

Q: A new machine will cost P17000 and will have an estimated salvage value of P11000 in five years.…

A: Total first cost (C) = P 17000 + P 5000 = P 22000 Total salvage value (S) = P 11000 + P 2500 = P…

Q: You invest $100,000 in a project and received $40,000 at n = 1, $40,000 at n = 2, and $30,000 at n =…

A: Project balance at the time of termination = Initial Investment - Sum Present value of cash inflow

Concept explainers

Real Estate

Real estate means ownership of land along with the assets and natural resources that exist on the land. These properties are in real/physical form which is tangible. Real estate simply means land or addition made to land permanently like constructing a residence or different buildings. People invest in real estate to either reside or for wealth creation. Many people investing in real estate further lend the place for occupation or businesses in return for a monthly payment.

Question

Margaret has a project with a $28 000 first cost that returns $5000 per year over its 10-year life. It has a salvage value of $3000
at the end of 10 years. If the MARR is 15 percent, what is the future worth of this project after 10 years? What is the discounted
payback period for this project?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Trending now

This is a popular solution!

Step by step

Solved in 4 steps with 4 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

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.
Markoff Products is considering two competing projects, but only one will be selected. Project A requires an initial investment of $42,000 and is expected to generate future cash flows of $6,000 for each of the next 50 years. Project B requires an initial investment of $210,000 and will generate $30,000 for each of the next 10 years. If Markoff requires a payback of 8 years or less, which project should it select based on payback periods?
Conestoga Plumbing plans to invest in a new pump that is anticipated to provide annual savings for 10 years of $50,000. The pump can be sold at the end of the period for $100,000. What is the present value of the investment in the pump at a 9% interest rate given that savings are realized at year end?
Washington-Pacific (W-P) invested $4 million to buy a tract of land and plant some young pine trees. The trees can be harvested in 10 years, at which time W-P plans to sell the forest at an expected price of $8 million. What is W-P’s expected rate of return?
Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
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.
Jasmine Manufacturing is considering a project that will require an initial investment of $52,000 and is expected to generate future cash flows of $10,000 for years 1 through 3, $8,000 for years 4 and 5, and $2,000 for years 6 through 10. What is the payback period for this project?
Redbird Company is considering a project with an initial investment of $265,000 in new equipment that will yield annual net cash flows of $45,800 each year over its seven-year life. The companys minimum required rate of return is 8%. What is the internal rate of return? Should Redbird accept the project based on IRR?
Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 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.
The Ham and Egg Restaurant is considering an investment in a new oven that has a cost of $60,000, with annual net cash flows of $9,950 for 8 years. The required rate of return is 6%. Compute the net present value of this investment to determine whether or not you would recommend that Ham and Egg invest in this oven.
Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
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?