2. Marigold Corp. is considering the purchase of a piece of equipment and has complied the information… Marigold Corp. is considering the purchase of a piece of equipment and has complied the following informationInitial costOne-time training costSalvage valueUseful life12Projected net annual cash flows over the project's life are:3$119000Year Net Annual Cash Flow4140005220005 years$3500053000580006400072000Marigold uses the cash payback method as an initial screening tool and has a policy that the payback period should not be more thanhalf of the asset's useful life. Based on this, should Marigold move forward with further evaluation of the equipment purchase? Projected net annual cash flows over the project's life are:Year Net Annual Cash Flow12345$3500053000580006400072000Marigold uses the cash payback method as an initial screening tool and has a policy that the payback period should not be more thanhalf of the asset's useful life. Based on this, should Marigold move forward with further evaluation of the equipment purchase?Yes, because the cash payback period of 2.36 years is less than half of the asset's 5-year useful life.O No, because the cash payback 2.78 years is longer than half of the asset's 5-year useful life.Yes, because the cash payback period of 2.78 years is less than the asset's 5-year useful life of the asset.O No, because the cash payback period of 2.53 years is longer than half of the asset's 5-year useful life.

The question is based on the concept of Cost Accounting. Payback period is the period in which the…

Marigold Corp. is considering the purchase of a piece of equipment and has complied the following information Initial cost One-time training cost Salvage value Useful life $119000 14000 22000 5 years Projected net annual cash flows over the project's life are:

Marigold Corp. is considering the purchase of a piece of equipment and has complied the following information Initial cost One-time training cost Salvage value Useful life $119000 14000 22000 5 years Projected net annual cash flows over the project's life are:

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 18EB: Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the...

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Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the following cash flows over the next five years: $99,000, $88,000, $92,000. $87,000, and $72,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel. see Appendix C.
Gallant Sports s considering the purchase of a new rock-climbing facility. The company estimates that the construction will require an initial outlay of $350,000. Other cash flows are estimated as follows: Assuming the company limits its analysis to four years due to economic uncertainties, determine the net present value of the rock-climbing facility. Should the company develop the facility if the required rate of return is 6%?
The management of Ryland International Is considering Investing in a new facility and the following cash flows are expected to result from the investment: A. What Is the payback period of this uneven cash flow? B. Does your answer change if year 6s cash inflow changes to $920,000?
Assume San Lucas Corporation in MAD 26-1 assigns the following probabilities to the estimated annual net cash flows: a. Compute the expected value of the annual net cash flows. b. Determine the expected net present value of the equipment, assuming a desired rate of return of 10% and the expected annual net cash flows computed in part (a). Use the present value tables (Exhibits 2 and 5) provided in the chapter in determining your answer. c. Based on your results in parts (a) and (b), should San Lucas Corporation invest in the equipment?
Roberts Company is considering an investment in equipment that is capable of producing more efficiently than the current technology. The outlay required is 2,293,200. The equipment is expected to last five years and will have no salvage value. The expected cash flows associated with the project are as follows: Required: 1. Compute the projects payback period. 2. Compute the projects accounting rate of return. 3. Compute the projects net present value, assuming a required rate of return of 10 percent. 4. Compute the projects internal rate of return.
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?
Assume Home Garden Inc. in MAD 26-5 assigns the following probabilities to the estimated construction cost of the warehouse and annual net cash flows: a. Compute the expected value of the construction cost. b. Compute the expected value of the annual net cash flows. c. Determine the expected net present value of building the distribution warehouse, assuming a desired rate of return of 14% and using the expected values computed in parts (a) and (b). Use the present value tables provided in Appendix A. Round to the nearest dollar. d. Based on your results in part (c), should Home Garden Inc. build the distribution warehouse?
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he Novak Company is planning to purchase $502,100 of equipment with an estimated seven-year life and no estimated salvage value. The company has projected the following annual cash flows for the investment. Year Projected Cash Flows 1 $193,500 2 141,500 3 94,500 4 79,200 5 79,200 6 45,000 7 45,000 Total $677,900 (a) Calculate the payback period for the proposed equipment purchase. Assume that all cash flows occur evenly throughout the year. Payback period years and months. (b) If Novak requires a payback period of three years or less, should the company make this investment? The company should notshould make this investment.
Bailey Corporation is considering purchasing one of two new processing machines. Either machinewould make it possible for the company to produce its products more efficiently than it is currentlyequipped to do. Estimates regarding each machine are provided below:Machine A Machine BInitial Investment $113,250 $270,000Estimated life 10 years 10 yearsSalvage value -0- -0-Estimated annual cash inflows $30,000 60,000Estimated annual cash outflows $ 7,500 $15,000Instructions1. Calculate the net present value and profitability index of each machine. Assume an 8% discountrate. Which machine should be purchased?Bailey Corporation did some further research and found one other possible machine that would producethe same type of production efficiencies. The information regarding Machine C is below:Machine CInitial Investment $250,000Estimated life 10 yearsSalvage value $ 30,000Estimated annual cash inflows $ 45,000Estimated annual cash outflows $ 10,0002. Calculate the net present value and…
San Lucas Corporation is considering investment in robotic machinery based upon the following estimates: Cost of robotic machinery $4,000,000 Residual value 300,000 Useful life 10 years a. Determine the net present value of the equipment, assuming a desired rate of return of 10% and annual net cash flows of $700,000. Use the present value tables appearing in Exhibit 2 and 5 of this chapter. Net present value $ b. Determine the net present value of the equipment, assuming a desired rate of return of 10% and annual net cash flows of $500,000, $700,000, and $900,000. Use the present value tables (Exhibit 2 and 5) provided in the chapter in determining your answer. If required, use the minus sign to indicate a negative net present value. Annual Net Cash Flow $500,000 $700,000 $900,000 Net present value $ $ $ c. Determine the minimum annual net cash flow necessary to generate a positive net present value, assuming a desired rate of return of 10%. Round to the nearest…
RLC Manufacturing is planning to purchase a cutting equipment. Information are as follows: Equipment 1 Equipment 2 First Cost P 12,000 P 18,000 Salvage Value P 600 P 2,000 Annual Operation P 3,200 P 2,500 Annual Maintenance P 1,200 P 1,000 Taxes & Insurance 3% 3% Life, years 10 15 Money is worth at least 16%. Which equipment should be selected? Use: a. Rate of Return Method Rate of Return Method Annual Cost Method NOTE: Show cashflow diagram.