Problem 1: Equivalent Annual Cost: ABC will be purchasing one of the two available models for its manufacturing equipment. Both equipment and the product being manufactured will have a life of 8 years. Details are as follows: Model Y P 400,000 P420,000 60,000 30,000 30,000 Model X Cost Salvage Value Annual operating cost Major repair cost, 6th year 50,000 40,000

Problem 1: Equivalent Annual Cost: ABC will be purchasing one of the two available models for its manufacturing equipment. Both equipment and the product being manufactured will have a life of 8 years. Details are as follows: Model Y P 400,000 P420,000 60,000 30,000 30,000 Model X Cost Salvage Value Annual operating cost Major repair cost, 6th year 50,000 40,000

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 17EA: Gardner Denver Company is considering the purchase of a new piece of factory equipment that will...

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Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $420,000 and will generate $95,000 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.
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?
Refer to Cornerstone Exercises 2.2 and 2.3. Next year, Pietro expects to produce 50,000 units and sell 49,300 units at a price of 12.50 each. Beginning inventory of finished goods is 42,500, and ending inventory of finished goods is expected to be 34,000. Total selling expense is projected at 26,000, and total administrative expense is projected at 134,000. Required: 1. Prepare an income statement in good form. Be sure to include the percent of sales column. 2. What if the cost of goods sold percentage for the past few years was 65 percent? Explain how management might react.
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Two machines are being taken into consideration for the manufacturing of a selected component for which there's a protracted term-demand. Machine A value P50,000.00 and is anticipated to final three years and feature a P10,000 salvage value. Machine B expenses P75,000.00 and is anticipated to final 6 years and feature 0 salvage value. Machine A can produce a component in 18 seconds; Machine B calls for simplest 12 seconds in step with component. The out-of-pocket hourly value of operation is P38.00 for A and P30.00 for B. Monthly Maintenance value are P200.00 for A and P220.00 for B. If interest invested is 15%, decide the range of components in step with yr. at which the machines are similarly economical. If the anticipated range of components in parts per year is extra than this break-even quantity, which gadget might be favored?
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Two machines are being taken into consideration for the manufacturing of a selected component for which there's a protracted-term demand. Machine A value P50,000.00 and is anticipated to final three years and feature a P10,000 salvage value. Machine B expenses P75,000.00 and is anticipated to final 6 years and feature 0 salvage value. Machine A can produce a component in 18 seconds; Machine B calls for the simplest 12 seconds in step with the component. The out-of-pocket hourly value of the operation is P38.00 for A and P30.00 for B. Monthly Maintenance values is P200.00 for A and P220.00 for B. If the hobby on invested capital is 25%, decide the range of components in step with yr. at which the machines are similarly economical. If the anticipated range of components in step with yr. is extra than this break-even quantity, which gadget might be favored?
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A company with a MARR of 15% must install one of two production machines, X or Y. Machine X has an initial cost of $40,000 with an annual operating and maintenance (O&M) cost of $30,000 and a salvage value of $5,000 after its 5-year life. It will generate an annual benefit of $150,000. Machine Y’s benefits and costs differ from machine X’s. Hint: NPW = PW (benefits) − PW (costs) Group of answer choices NPW = [$150,000(P/A, 15%, 5)] + [$40,000 + $30,000(P/A, 15%, 5) + $5,000(P/F, 15%, 5)] NPW = [$150,000(P/A, 15%, 5)] − [$40,000 + $30,000(P/A, 15%, 5) − $5,000(P/F, 15%, 5)] NPW = [$150,000(P/A, 15%, 5)] − [$40,000 + $30,000(P/A, 15%, 5) + $5,000(P/F, 15%, 5)] NPW = [$150,000(P/A, 15%, 5)] − [$40,000 − $30,000(P/A, 15%, 5) + $5,000(P/F, 15%, 5)]
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