Opportunity cost. Revolution Records will build a new recording studio on a vacant lot next to the operations center. The land was purchased five years ago for $480,000. Today, the value of the land has appreciated to $750,000. Revolution Records did not consider the value of the land in its NPV calculations for the studio project (it had already spent the money to acquire the land long before this project was considered). The NPV of the recording studio is $590,000. Should Revolution Records have c

Opportunity cost. Revolution Records will build a new recording studio on a vacant lot next to the operations center. The land was purchased five years ago for $480,000. Today, the value of the land has appreciated to $750,000. Revolution Records did not consider the value of the land in its NPV calculations for the studio project (it had already spent the money to acquire the land long before this project was considered). The NPV of the recording studio is $590,000. Should Revolution Records have c

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 7EB: An auto repair company needs a new machine that will check for defective sensors. The machine has an...

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Richard XYZ Company., is looking at setting up a new manufacturing plant in South Park. The company bought some land six years ago for $5.3 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent facilities elsewhere. The land would net $7.7 million aftertax if it were sold today. The company now wants to build its new manufacturing plant on this land; the plant will cost $29.3 million to build, and the site requires $1.41 million worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project?Thank you for your help very appreciated.
Please DO NOT USE EXCEL TO SOLVE A land development company is considering the purchase of earth moving equipment. The equipment will have a first cost of $190,000 and a salvage value of $70,000 when the company sells it in 10 years. A service contract for maintenance on the equipment will cost $40,0000 per year. The operating cost is expected to be $260 per day. Alternatively, the company can rent the necessary equipment for $1100 per day and hire a driver for $180 per day. If the company's MARR is 10% per year how many days per year must the company need the equipment in order to justify its purchase?
A company is trying to determine the initial investment for a four-year replacement project. The company owns some land that was originally purchased for $1,000,000. The land can be used for this new project but if the project is not undertaken, then the land can be sold for $4.3 million. The initial capital expenditure for this project will be $16 million. Because this is a replacement project, management feels that inventory will be reduced by $2.41 million but that will be reversed at the end of this project. The company also spent $1.03 million on a marketing survey to determine the feasibility of this project. What is the initial outlay at time 0 for this project? Express your answer in millions of dollars and round to two decimal places. Negative amount should be indicated by a minus sign
KP has spent $1000 on research and development (R&D) and FDA testing for Corzine.• The Corzine project will require building a new manufacturing plant. KP purchased a plot of land 5 yearsago for $500. The land was recently appraised at $1000. If KP rejects the Corzine project they will sellthe land since it will not be needed.• KP will spend $8000 to build the plant.• The new plant will be depreciated down to zero on a straight-line basis, over the project’s 5 year usefullife.• KP will need to increase Net Working Capital (NWC) by $1000 at time zero. NWC will then decrease by$200 each year of the project’s life, so that after year 5 the NWC is completely recovered.• The fixed assets associated with the project will have no salvage value. KP will need to spend $500 attime 5 to clean up hazardous waste from the plant. The $500 is a tax-deductible expense.• KP spent $500 on a marketing study that resulted in this sales forecast for the quantity sold each year:Year Units sold (Q)1 8002…
Using the information in the following table, what is the NPV of the project (rounded to the nearest dollar)? Dunaway Industries is evaluating the idea of expanding their production facility in Cobb County The CFO gathered the following data. Dunaway Industries spent $500,000 researching other sites for their expansion The equipment needed for the expansion will cost $25,600,000 fully installed . The equipment will be depreciated over 20 years to a salvage value of $1.000.000 . Dunaway Industries uses straight -line depreciation . If Dunaway accepts the project the company will sell the equipment for salvage value ( i.e.$ 1,000,000 ) at the end of the life of the project If Dunaway Industries adds the new equipment , sales are expected to increase by 17,400,000 and costs are expected to increase by $ 10,000,000 . The appropriate tax rate for Dunaway Industries is 30 % The capital of the firm includes 70 % of equity and 30 % of debt . Dunaway Industries recently issued a bond with 30…
A manufacturer is considering replacing a production machine tool. The new machine, costing $40,000, would have a life of 5 years and no salvage value, but would save the firm $5000 per year in direct labor costs and $2000 per year in indirect labor costs. The existing machine tool was purchased 4 years ago at a cost of $40,000. It will last 5 more years and will have no salvage value. It could be sold now for $15,000 cash. Assume that money is worth 10% and that differences in taxes, insurance, and so forth are negligible. Use an annual cash flow analysis to determine whether the new machine should be purchased.
The management of Ro Corporation is investigating automating a process. Old equipment, with a current salvage value of $21,000, would be replaced by a new machine. The new machine would be purchased for $462,000 and would have a 6 year useful life and no salvage value. By automating the process, the company would save $159,000 per year in cash operating costs. The simple rate of return on the investment is closest to (Ignore income taxes.): (Round your answer to 1 decimal place.) Garrison_16e_Rechecks_2019_10_12 Multiple Choice 18.6% 17.7% 34.4% 16.7%
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Assume that United Technologies is evaluating a proposal to change the company's manual design system to a computer-aided design (CAD) system. The proposed system is expected to save 10,000 design hours per year; an operating cost savings of $50 per hour. The annual cash expenditures of operating the CAD system are estimated to be $250,000. The CAD system requires an initial investment of $500,000. The estimated life of this system is five years with no salvage value. The tax rate is 40 percent. United Technologies has a cost of capital of 20 percent.Assume that management intends to use double-declining balance depreciation with a switch to straight-line depreciation (applied to any undepreciated balance) starting in Year 4.Determine the project's net present value
APA is planning to expand its operations and plans to purchase a parcel of land on which to construct a building for their review center, which they will need 5 years hence. The current costs are: land: P2M; building: P3.5M. Since these are not needed immediately, the company plans to defer the purchase of the land and the construction of the building until they are needed. If the value of the land and the cost of the building are expected to appreciate at the rates of 10% and 8% per annum, respectively. What will be the total cost of the investment after 5 years? A. P8,580,275.74 B. P7,244,668.37 C. P8,363,668.27 D. None of these
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The LJB Company must replace a freezer and is trying to decide between the following two alternatives: Item Freezer A Freezer B Investment required (29,000) (25,000) Annual electrical bill (3,000) (4,000) Salvage value 6,000 5,000 Project life in years 11 11 The LJB Company’s cost of capital is 8 percent. Which investment provides LJB with the lowest total cost?