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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.Grummet Company is acquiring a new wood lathe with a cash purchase price of $80,000. The Wood Master Industries (the manufacturer) has agreed to accept $23,500 at the end of each of the next 4 years. Based on this deal, how much interest will Grummet pay over the life of the loan? A. $94,000 B. $80,000 C. $23,500 D. $14,000REPLACEMENT CHAIN The Lesseig Company has an opportunity to invest in one of two mutually exclusive machines that will produce a product the company will need for the next 8 years. Machine A costs 8.9 million but will provide after-tax inflows of 4.5 million per year for 4 years. If Machine A were replaced, its cost would be 9.8 million due to inflation and its cash inflows would increase to 4.7 million due to production efficiencies. Machine B costs 13.9 million and will provide after-tax inflows of 4.3 million per year for 8 years. If the WACC is 9%, which machine should be acquired? Explain.
- Steel drums manufacturer incurs a yearly operating cost of P 200,000. Each drum manufactured cost P 160 and sells for P 300. A machine use for the production has a first cost of P 20,000 and a salvage value of P 2,000 after producing 1,000 units. What is the break even number of units per year? Choices: a. 1,452 b. 1,510c. 1,386d. 1,640 Show solution. Do not use excel. Ans: d1) A manufacturing plant manager has purchased a new bologna slicing machine for $24,500. The new machine is expected to produce an extra $8,000 of revenue and have an annual operating expense of $3,000. If the useful life is expected at 6 years and i = 7% per year, what is the PW? Select one: a. $35000 b. $23835 c. $ 25000 d. $500006) Plum plc wishes to replace its existing pressing machine with a new model immediately. The new model would be replaced by the same model. Three new models are available as follows: Model I II III Purchase price £50,000 £40,000 £70,000 Estimated life 5 years 4 years 6 years Annual running costs (Payable at the end of each year) £4,000. £6,000 £3,500 Plum plc has a cost of capital of 10% per annum. Which new model should Plum plc choose, and what replacement policy should it follow if it wishes to minimise the present value of its costs? A) Purchase model I and replace every five years B) Purchase model II and replace every four years C) Purchase model III and replace every six years
- A company plans to purchase a new machine due to the expected demand for anew product. The machine costs Ghc185,000 and it is expected that the machineshall be used for five (5) years with a scrap value of Ghc15,000. The companyexpects the demand for the product to be as follows: Year 1 2 3 4 5 Demand (Units) 25,000 30,000 35,000 40,000 20,000 Increase Selling Price 2% per year Variable Cost of production Fixed production expenses 3% per year5% per year The company’s cost of capital is 10% and pays corporate tax at a rate of 25% inthe related year. Calculate the Net Present Value (NPV) of purchasing the newmachine advice whether it makes economic sense to buy the new machine.Choice A: Buy the machine Machine Cost: P700,000 Economic Life: 10 years Trade-in Value: P100,000 Operating Cost per day: P500 Choice B: Rent the machine Rent Payment: P1,500 per day Assuming that the rate of return is 18% and Choice A is to be chosen, how long in days should the machine be in use. Please explain step by stepAlpha Company has an opportunity to manufacture and sell a new product for a 3-year period. The company's discount rate is 12%. After careful study, Alpha estimated the following costs and revenues for the new product: Cost of equipment needed £200,000 Working capital needed 50,000 Repair of the equipment in first year $5000. Salvage value of the equipment in 3 years 15000. Annual revenues and costs: Sales revenue 500,000 Variable expenses 250,000 Fixed out-of-pocket operating costs 50,000 When the project concludes in 3r years the working capital will be released for investment elsewhere within the company. What is the NPV of the project?
- QUESTION ONEETM Co is considering investing in machinery costing K150,000 payable at the start of firstyear. The new machine will have a three-year life with K60,000 salvage value at the end of 3 years. Other details relating to the project are as follows.Year 1 2 3 Demand (units) 25,500 40,500 23,500 Material cost per unit K4.35 K4.35 K4.35 Incremental fixed cost per year K45,000 K50,000 K60,000Shared fixed costs K20,000 K20,000 K20,000The selling price in year 1 is expected to be K12.00 per unit. The selling price is expected to rise by 16% per year for the remaining part of the project’s life.Material cost per unit will be constant at K4.35 due to the contract that ETM has with its suppliers. Labor cost per unit is expected to be K5.00 in year 1 rising by 10% per year beyond the first year. Fixed costs (nominal) are made of the project fixed cost and a share of head office overhead. Working capital will be…A company wants to buy a machine with a cash sale price of 750,000 TL. The machine is economicallife is 4 years and at the end of this period the estimated scrap value will be 100,000 TL. Annual maintenance cost 20.000 TLAs per the contract, there will be no increase in maintenance costs for 4 years. From products to be produced by machine300.000 TL sales revenue will be obtained in the first year and sales revenues will increase by 15% in the following yearsIt is estimated. The labor and material expenses in the first year are estimated to be 100,000 TL and the labor costs in the following years.and supplies costs will increase by 10% each year. If the expected return rate from this investment is 20%,Calculating the present value (NPV) ”and whether the investment in machinery will be economical according to this methodspecifyNet Present Value Analysis [L014-2] Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate is 18%. After careful study, Oakmont estimated the following costs and revenues for the new product: \table[[Cost of equipment needed,$270,000
