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- A man is considering investing P500, 000 to open a semi-automatic auto-washing business in a city of 400, 000 population. The equipment can wash, on the average, 12 cars per hour, using two men to operate it and to do small amount of hand work. The man plans to hire two men, in addition to himself, and operate the station on an 8-hour basis, 6 days per week, 50 weeks per year. He will pay his employees P25. 00 per hour. He expects to charge P25. 00 for a car wash. Out-of-pocket miscellaneous cost would be P8, 500 per month. He would pay his employees for 2 weeks for vacations each year. Because of the length of his lease, he must write off his investment within 5 years. His capital now is earning 15%, and he is employed at a steady job that pays P25, 000 per month. He desires a rate of return of at least 20% on his investment. Would you recommend the investment? a) Use ROR method b) Use Annual Worth method c) Use present worth method d) Use future worth method e) Solve for the payback…A man is considering investing P500, 000 to open a semi-automatic auto-washingbusiness in a city of 400, 000 population. The equipment can wash, on the average, 12 carsper hour, using two men to operate it and to do small amount of hand work. The man plansto hire two men, in addition to himself, and operate the station on an 8-hour basis, 6 daysper week, 50 weeks per year. He will pay his employees P25. 00 per hour. He expects tocharge P25. 00 for a car wash. Out-of-pocket miscellaneous cost would be P8, 500 permonth.He would pay his employees for 2 weeks for vacations each year. Because of the length ofhis lease, he must write off his investment within 5 years. His capital now is earning 15%,and he is employed at a steady job that pays P25, 000 per month. He desires a rate ofreturn of at least 20% on his investment. Would you recommend the investment? Use present and future worth method.Benton is a rental car company that is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its rental cars over four years using the straight-line method. The new cars are expected to generate $245,000 per year in earnings before taxes and depreciation for four years. The company is entirely financed by equity and has a 24 percent tax rate. The required return on the company’s unlevered equity is 14 percent and the new fleet will not change the risk of the company. The risk-free rate is 7 percent. a. What is the maximum price that the company should be willing to pay for the new fleet of cars if it remains an all-equity company? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Suppose the company can purchase the fleet of cars for $615,000. Additionally, assume the company can issue $350,000 of four-year debt to finance the project at the risk-free rate of 7 percent. All principal…
- Beckman Technologies, a relatively small manufacturer of precision laboratory equipment, borrowed $2 million to renovate one of its testing labs. In an effort to pay off the loan quickly, the company made four payments in years 1 through 4, with each payment being twice as large as the preceding one. At an interest rate of 10% per year, what was the size of the fi rst payment?Benton is a rental car company that is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its rental cars over six years using the straight-line method. The new cars are expected to generate $195,000 per year in earnings before taxes and depreciation for six years. The company is entirely financed by equity and has a 23 percent tax rate. The required return on the company’s unlevered equity is 13 percent and the new fleet will not change the risk of the company. The risk-free rate is 6 percent. a. What is the maximum price that the company should be willing to pay for the new fleet of cars if it remains an all-equity company? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Suppose the company can purchase the fleet of cars for $675,000. Additionally, assume the company can issue $470,000 of six-year debt to finance the project at the risk-free rate of 6 percent. All principal will…You are the newly hired risk analyst for Smith Inc,, a food distribution company based in Nashville, Tennessee. Currently, Smith pays $1,000,000 annually in premium for workers' compensation coverage. There is no deductible. The company's broker thinks she can save a sizeable amount of money if you purchase a large deductible program with a $250,000 per occurrence deductible. Smith has 1000 employees and expects 20% losses for the coming year. The expected value of each loss is $7,500. Should Smith Company switch from its current program which costs $1,000,000 per year to the large deductible one recommended by the broker?
- A company is currently paying its employees $0.51 per mile to drive their own cars when on company business. However, it is considering supplying employees with cars, which would involve the following cost components: car purchase at $22,000 with an estimated three-year life; a net salvage value of $5,000; taxes and insurance at a cost of $1,000 per year; and operating and maintenance expenses of $0.25 per mile. If the interest rate is 10% and the company anticipates an employee's annual travel to be 30,000 miles, what is the equivalent cost per mile (without considering income tax)? Which plan is better?As the director of a construction firm, you are considering buying a new cement mixing truck for $103, 000. At the end of its useful life of 5 years, you expect to be able to sell it for $4, 300. the mixing truck is expected to have annual operating and maintenance expenses of $2, 300 Your cement-mixing truck is expected to depreciate for tax purposes at a declining balance rate of 25%. The corporate income tax rate is 30%. Your company’s WACC is 11%. Assume the asset pool remains open after selling the item. Calculate the equivalent annual after-tax cost., the half-year rule should be used where applicable. Round your answer to the nearest dollarAyden’s Toys, Inc., just purchased a $475,000 machine to produce toy cars. The machine will be fully depreciated by the straight-line method over its 6-year economic life. Each toy sells for $19. The variable cost per toy is $6 and the firm incurs fixed costs of $335,000 per year. The corporate tax rate for the company is 23 percent. The appropriate discount rate is 11 percent. What is the financial break-even point for the project?
- A young entrepreneur wanted to open a small laundry shop. An investment of P280,654 is needed for a laundry shop that will produce a uniform annual income. This laundry shop is operating daily (assuming 26 days a month) for 6 years and then have a salvage value of 12% of the investment. Its operating and maintenance cost will be P75,456 per year. Taxes and insurance will be 3% of the first cost per year. The company expects capital to earn not less than 20% before income taxes. Using RoR method, how much should be their minimum daily revenue for this investment to be desirable(break-even)?Camber Corporation has to decide if they can finance purchasing 10 new machines for all their manufacturing sites. The machines cost $1.73 million each, and the supplier agreed to the following payment terms, 40% upfront, and the remainder to be paid over 4 years at an annual rate of 12%.b) Critically discuss the effect of increasing the amount paid upfront when corporations make capital purchases, focusing on the benefits and drawbacksCherry, Inc., currently has a machine that costs $10,000 per year to operate. The machine can produce 50,000 units per year. Three years ago the company borrowed $200,000 to purchase the machine; it still owes $125,000 of that amount. Cherry could sell the machine for $70,000 and purchase a new, more efficient machine at a cost of $220,000. The new machine can produce 85,000 units per year; its annual operating costs would be $12,000.Indicate whether each piece of information in this scenario is relevant or irrelevant to the decision to purchase the new machine. Operating cost of old machine RelevantIrrelevant Production of old machine RelevantIrrelevant Purchase price of old machine RelevantIrrelevant Loan balance RelevantIrrelevant Market value of old machine RelevantIrrelevant Cost of new machine RelevantIrrelevant Production of new machine RelevantIrrelevant Operating cost of new machine RelevantIrrelevant