I could use a hand with this Current Attempt in ProgressPina Colada Industries is considering the purchase of new equipment costing $1,500,000 to replace existing equipment that will besold for $100,000. The new equipment is expected to have a $200,000 salvage value at the end of its 5-year life. During the periodof its use, the equipment will allow the company to produce and sell an additional 25,000 units annually at a sales price of $41 perunit. Those units will have a variable cost of $22 per unit. The company will also incur an additional $90,000 in annual fixed costs.y GoodClick here to view the factor table.egin your asse(a) Calculate the net present value of the proposed equipment purchase. Assume that Pina Colada uses a 10% discount rate. (Forcalculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, eg. 58,971.Enter negative amount using a negative sign preceding the number eg. -59,992 or parentheses eg. (59,992).)laving issues?Net present value24(b) Do you recommend that Pina Colada lIndustries invest in the new equipment?

The NPV is the present value of cash flows during the life of the assets. Cash flows do not consider…

Prent Attempt in Progress Pina Colada Industries is considering the purchase of new equipment costing $1,500,000 to replace existing equipment that will be sold for $100,000. The new equipment is expected to have a $200,000 salvage value at the end of its 5-year life. During the period of its use, the equipment will allow the company to produce and sell an additional 25,000 units annually at a sales price of $41 per unit. Those units will have a variable cost of $22 per unit. The company will also incur an additional $90,000 in annual fixed costs. Click here to view the factor table. (a) Calculate the net present value of the proposed equipment purchase. Assume that Pina Colada uses a 10% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, eg. 58,971. Enter negative amount using a negative sign preceding the numbereg. -59,992 or parentheses eg. (59,992).) Net present value 24 (b) Do you recommend that Pina Colada lIndustries invest in the new equipment?

Prent Attempt in Progress Pina Colada Industries is considering the purchase of new equipment costing $1,500,000 to replace existing equipment that will be sold for $100,000. The new equipment is expected to have a $200,000 salvage value at the end of its 5-year life. During the period of its use, the equipment will allow the company to produce and sell an additional 25,000 units annually at a sales price of $41 per unit. Those units will have a variable cost of $22 per unit. The company will also incur an additional $90,000 in annual fixed costs. Click here to view the factor table. (a) Calculate the net present value of the proposed equipment purchase. Assume that Pina Colada uses a 10% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, eg. 58,971. Enter negative amount using a negative sign preceding the numbereg. -59,992 or parentheses eg. (59,992).) Net present value 24 (b) Do you recommend that Pina Colada lIndustries invest in the new equipment?

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 8E: Net present value method for a service company Coast-to-Coast Inc. is considering the purchase of an...

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Net present value method for a service company Coast-to-Coast Inc. is considering the purchase of an additional delivery vehicle for 70,000 on January 1, 20Y1. The truck is expected to have a five-year life with an expected residual value of 15,000 at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be 65,000 per year for each of the next five years. A driver will cost 40,000 in 20Y1, with an expected annual salary increase of 2,000 for each year thereafter. The annual operating costs for the truck are estimated to be 6,000 per year. a. Determine the expected annual net cash flows from the delivery truck investment for 20Y120Y5. b. Compute the net present value of the investment, assuming that the minimum desired rate of return is 12%. Use the present value table appearing in Exhibit 2 of this chapter. c. Is the additional truck a good investment based on your analysis? Explain.
Net Present Value Talmage Inc. has just completed development of a new printer. The new product is expected to produce annual revenues of 2,700,000. Producing the printer requires an investment in new equipment costing 2,880,000. The printer has a projected life cycle of 5 years. After 5 years, the equipment can be sold for 360,000. Working capital is also expected to increase by 360,000, which Talmage will recover by the end of the new products life cycle. Annual cash operating expenses are estimated at 1,620,000. The required rate of return is 8%. Required: Prepare a schedule of the projected annual cash flows. Calculate the NPV using only discount factors from Exhibit 12B.1 (p. 670). Calculate the NPV using discount factors from both Exhibits 12B.1 and 12B.2 (p. 671).
Depreciation Jensen Inc., a graphic arts studio, is considering the purchase of computer equipment and software for a total cost of $18,000. Jensen can pay for the equipment and software over three years at the rate of $6,000 per year. The equipment is expected to last 10 to 20 years, but because of changing technology, Jensen believes it may need to replace the system in as soon as three to five years. A three-year lease of similar equipment and software is available for $6,000 per year. Jensens accountant has asked you to recommend whether the company should purchase or lease the equipment and software and to suggest the length of time over which to depreciate the software and equipment if the company makes the purchase. Required Ignoring the effect of taxes, would you recommend the purchase or the lease? Why or why not? Referring to the definition of depreciation, what appropriate useful life should be used for the equipment and software?
Average rate of returncost savings Maui Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of 125,000 with a 15,000 residual value and an eight-year life. The equipment will replace one employee who has an average wage of 28,000 per year. In addition, the equipment will have operating and energy costs of 5,150 per year. Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment.
New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer’s base price is $1,080,000, and it would cost another $22,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $605,000. The MACRS rates for the first 3 years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $15,500. The sprayer would not change revenues, but it is expected to save the firm $380,000 per year in before-tax operating costs, mainly labor. Campbell’s marginal tax rate is 35%. What is the Year-0 cash flow? What are the net operating cash flows in Years 1, 2, and 3? What is the additional Year-3 cash flow (i.e., the after-tax salvage and the return of working capital)? If the project’s cost of capital is 12%, should the machine be purchased?