The company you work for just bought a high end milling machine for $389,000,which the vendor is going to install for an additional $8,950. Your boss has asked youto look into optimizing the mill ownership strategy for your company.The operating cost of the mill is going to be $26,500 in the first year, which isexpected to increase by 6% per year after the first year. The resale value of the mill isexpected to be 90% of the machine cost in the first year and then decline by 10%per year from there on out. What is the optimal ownership period (economic life) inyears assuming a MARR of 11%?8O57

A Company has purchased a high end milling machine for $ 3,89,000. The operating cost of the mill is…

Answered: per year from there on out. What is the…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 10P

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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.
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Talbot Industries is considering launching a new product. The new manufacturing equipment will cost 17 million, and production and sales will require an initial 5 million investment in net operating working capital. The companys tax rate is 40%. a. What is the initial investment outlay? b. The company spent and expensed 150,000 on research related to the new product last year. Would this change your answer? Explain. c. Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for 1.5 million after taxes and real estate commissions. How would this affect your answer?
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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?

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per year from there on out. What is the optimal ownership period (economic life) in years assuming a MARR of 11%?