Q7. Amanda started a home delivery cafe and need to buy a motorcycle for delivery orders. She has two models in mind. Model A is a Hyundai, costs $9000 and with an expected life of 6 years; model B is a Toyota, costing $14 000 and with an expected life of 10 years. The maintenance costs are $800 for model A and $700 for model B annually. Assume that the opportunity cost of capital is 10 per cent. Which one should Amandabuy using:.A) the NPV perpetuity method and B)the EAC method?

Q7. Amanda started a home delivery cafe and need to buy a motorcycle for delivery orders. She has two models in mind. Model A is a Hyundai, costs $9000 and with an expected life of 6 years; model B is a Toyota, costing $14 000 and with an expected life of 10 years. The maintenance costs are $800 for model A and $700 for model B annually. Assume that the opportunity cost of capital is 10 per cent. Which one should Amandabuy using:.A) the NPV perpetuity method and B)the EAC method?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 9E: Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required:...

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Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required: 1. Patz Corporation is considering the purchase of a computer-aided manufacturing system. The cash benefits will be 800,000 per year. The system costs 4,000,000 and will last eight years. Compute the NPV assuming a discount rate of 10 percent. Should the company buy the new system? 2. Sterling Wetzel has just invested 270,000 in a restaurant specializing in German food. He expects to receive 43,470 per year for the next eight years. His cost of capital is 5.5 percent. Compute the internal rate of return. Did Sterling make a good decision?
A grocery store is considering the purchase of a new refrigeration unit with an Initial Investment of $412,000, and the store expects a return of $100,000 in year one, $72000 in years two and three, $65,000 in years four and five, and $38,000 in year six and beyond, what is the payback period?
Kath is considering investing 500,000.00 to open a Milk Tea Station near a mall. Based on her feasibility study, she can sell 12 large size of milk tea per hour at a price of 25.00 per bottle. She is planning to hire 2 crews, with an hourly rate of 25.00, to manage the store which will operate 8hours per day, 6 days per week, and 50 weeks per year. However, additional out-of-pocket miscellaneous cost is 8,500.00 per month. More so, she wanted to have her crews a 2-week vacation every year with pay. If the capital now is earning 15% annually and she must write off her investment within 5 years with desire rate of return of at least 20% on his investment, would you recommend the investment? Use the rate of return method and annual worth method in making your decision.
Dawn is preparing a home office to perform subcontract projects for midsized architect firms. She plans to use $13,000 of her own funds, which currently generate a return of 4% per year. The remainder of financing will be provided by a $9,000 bank loan carrying a 9% per year interest rate. She hopes to realize a return of 3% above the average cost of capital to establish her office, and she realizes that the factors of inflation and risk should also be considered. Her decision is to add another 1.5% per year to compensate for these elements. What is the MARR she should use when evaluating projects? the Marr she should use is __%
You decide to help I.M. with his analysis. A good fax machine costs $500 and functions properly for 5 years. The phone company charges $300 for installing a new line and $60 a month for the line. A new delivery van costs $20,000 and can be financed for 60 months with a $4,000 down payment. I.M.’s bank will finance the van at 5.5 percent compounded monthly, and you calculated his weighted average cost of capital at 8 percent. You found that a 5-year-old van of this model sells for $5,000. After discussing the business venture with several retired restaurant owners at the local SCORE office, you believe that I.M., after paying his food costs, will increase his breakfast and lunch trade by $2,000 a month. I.M. can hire a part-time driver for $600 a month. The vehicle depreciates straight line for 5 years, or $3,000 per year. I.M. is a sole proprietor and is in a 20-percent tax bracket. You estimate that it will cost I.M. $300 a month to pay for maintenance, upkeep, and insurance on the…
. You decide to help I.M. with his analysis. A good fax machine costs $500 and functions properly for 5 years. The phone company charges $300 for installing a new line and $60 a month for the line. A new delivery van costs $20,000 and can be financed for 60 months with a $4,000 down payment. I.M.’s bank will finance the van at 5.5 percent compounded monthly, and you calculated his weighted average cost of capital at 8 percent. You found that a 5-year-old van of this model sells for $5,000. After discussing the business venture with several retired restaurant owners at the local SCORE office, you believe that I.M., after paying his food costs, will increase his breakfast and lunch trade by $2,000 a month. I.M. can hire a part-time driver for $600 a month. The vehicle depreciates straight line for 5 years, or $3,000 per year. I.M. is a sole proprietor and is in a 20-percent tax bracket. You estimate that it will cost I.M. $300 a month to pay for maintenance, upkeep, and insurance on the…
You decide to help I.M. with his analysis. A good fax machine costs $500 and functions properly for 5 years. The phone company charges $300 for installing a new line and $60 a month for the line. A new delivery van costs $20,000 and can be financed for 60 months with a $4,000 down payment. I.M.’s bank will finance the van at 5.5 percent compounded monthly, and you calculated his weighted average cost of capital at 8 percent. You found that a 5-year-old van of this model sells for $5,000. After discussing the business venture with several retired restaurant owners at the local SCORE office, you believe that I.M., after paying his food costs, will increase his breakfast and lunch trade by $2,000 a month. I.M. can hire a part-time driver for $600 a month. The vehicle depreciates straight line for 5 years, or $3,000 per year. I.M. is a sole proprietor and is in a 20-percent tax bracket. You estimate that it will cost I.M. $300 a month to pay for maintenance, upkeep, and insurance on the…
You decide to help I.M. with his analysis. A good fax machine costs $500 and functions properly for 5 years. The phone company charges $300 for installing a new line and $60 a month for the line. A new delivery van costs $20,000 and can be financed for 60 months with a $4,000 down payment. I.M.’s bank will finance the van at 5.5 percent compounded monthly, and you calculated his weighted average cost of capital at 8 percent. You found that a 5-year-old van of this model sells for $5,000. After discussing the business venture with several retired restaurant owners at the local SCORE office, you believe that I.M., after paying his food costs, will increase his breakfast and lunch trade by $2,000 a month. I.M. can hire a part-time driver for $600 a month. The vehicle depreciates straight line for 5 years, or $3,000 per year. I.M. is a sole proprietor and is in a 20-percent tax bracket. You estimate that it will cost I.M. $300 a month to pay for maintenance, upkeep, and insurance on the…
You decide to help I.M. with his analysis. A good fax machine costs $500 and functions properly for 5 years. The phone company charges $300 for installing a new line and $60 a month for the line. A new delivery van costs $20,000 and can be financed for 60 months with a $4,000 down payment. I.M.’s bank will finance the van at 5.5 percent compounded monthly, and you calculated his weighted average cost of capital at 8 percent. You found that a 5-year-old van of this model sells for $5,000. After discussing the business venture with several retired restaurant owners at the local SCORE office, you believe that I.M., after paying his food costs, will increase his breakfast and lunch trade by $2,000 a month. I.M. can hire a part-time driver for $600 a month. The vehicle depreciates straight line for 5 years, or $3,000 per year. I.M. is a sole proprietor and is in a 20-percent tax bracket. You estimate that it will cost I.M. $300 a month to pay for maintenance, upkeep, and insurance on the…
Manny Kurr is considering the purchase of a beauty salon. The initial cost of this purchase is $16,000. The after-tax cash flows from this investment should be $4,000 per year for the next 5 years. His opportunity cost of capital is 10 percent. Calculate the following:a. Payback—Should Manny buy the beauty salon based on payback if hisrequired payback is less than 3 years?b. The present value of the benefits (PVB),c. The present value of the costs (PVC),d. The net present value (NPV )—Should Manny buy the beauty salon based on NPV rules?e. Profitability index (PI )—what does the profitability index mean in terms of buying the beauty salon?f. Internal rate of return (IRR), (Hint: Use interpolation)—should Manny buythe beauty salon based on IRR rules?g. Accounting rate of return (ARR)—Should Manny buy the beauty salon based on the ARR? (please answer e,f, & g)
Nemo Haulers is considering whether to purchase a new mini tractor for moving furniture within its warehouse. Nemo calculates that its current mini tractor generates $3100 of cash flow per year. A new mini tractor would cost $3000 and would provide cash flow of $4000 per year for five years. What is the equivalent annual cash flow for the new mini tractor (round to the nearest dollar), and should Nemo purchase the new tractor? Assume the cost of capital for Nemo is 10 per cent. $4000, purchase the new tractor $3000, do not purchase the new tractor $3209, purchase the new tractor $12 163, purchase the new tractor
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)?