Question 17As the manager of an enginering firm you need to decide between the following two optiors regarding en equipmentOption A buy full sired equipmerd at 4 million today.Option B) buy a hall sired equipment at 2.7 million today and increase the capacity of the equipment 15 years from noww at 27 mllonConsidering an analysis period of 30 years, interest rate of 5%, and 0 salvage value for both the options, which option should heshe chooseOneither A nor BOBeither A or BOA

The present value concept of the time value of money determines the present value of cash flows. The…

Quetion 17 As the manager of an enginering firm you need to decide between the following two optiors regarding en quipment Option A buy ful sired equipmenat 4 million today. Option buy a hall sired equipment at 2.7 million today and inerease the capacity of the equipment 15 years from now at 23 millon Considering an analysis period of 30 years, interest rate of S%, and O salvage value for both the options, which option should hehhe cho Onelther A nor B OB O either A or B OA

Quetion 17 As the manager of an enginering firm you need to decide between the following two optiors regarding en quipment Option A buy ful sired equipmenat 4 million today. Option buy a hall sired equipment at 2.7 million today and inerease the capacity of the equipment 15 years from now at 23 millon Considering an analysis period of 30 years, interest rate of S%, and O salvage value for both the options, which option should hehhe cho Onelther A nor B OB O either A or B OA

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question 10 options: Tyrion Corporation would like to take out an operating lease or buy a machine. The annual lease payments, given to them from the lessor, will be $17,300 payable at the beginning of each year for 10 years. The cost to buy the machine is $130,000 now. The savage value is anticipated to be $8,000 at the end of 10 years. Maintenance costs of $3,250 (guaranteed and certain) will be made at the beginning of each year for 10 years (this is only applying with the buy option). The CCA rate for this machine is 20% and the tax rate is 41%. Any tax shields will be recognized at the end of the year. The borrowing rate is 5% and WACC is 15%. Round to the nearest dollar. What is the present value of the Annual Lease payment? Please use a negative. For example, -500000 What is the present value of the tax savings for operating lease? What is the Present value of the Salvage value under the buy option? What is the Present value of the…
Question 10 options: Tyrion Corporation would like to take out an operating lease or buy a machine. The annual lease payments, given to them from the lessor, will be $17,300 payable at the beginning of each year for 10 years. The cost to buy the machine is $130,000 now. The savage value is anticipated to be $8,000 at the end of 10 years. Maintenance costs of $3,250 (guaranteed and certain) will be made at the beginning of each year for 10 years (this is only applying with the buy option). The CCA rate for this machine is 20% and the tax rate is 41%. Any tax shields will be recognized at the end of the year. The borrowing rate is 5% and WACC is 15%. Round to the nearest dollar. What is the Present value of the Annual maintenance payments? Please use a negative. For example, -500000 What is the Present Value of the tax benefit they would get for the Annual Maintenance payments? What is the Present Value of the CCA Tax Shield?
11. Using the ERR method and a 17% MARR, determine the acceptability of a 10-year manufacturing project that requires an initial investment of P2.8M with additional expenses of P1M and P3M at the end of the third and seventh year, respectively. Annual income from this project is P1.25M for ten years with all equipment to be sold for PO.5M after that time. Apply a 14% reinvestment rate. (Ans. Project is acceptable, 18.1%)
Question A22 A project initially costs £297,000 and is expected to have a useful life of five years at which point its scrap value will be £32,000. The project is expected to yield operating profits of £94,000 per year over its useful life. What is the accounting rate of return? (2d.p.)
Question 4a) A firm has a choice between two investment projects, all of which involve an initial outlay of GH¢36,000. The returns at the end of the next 4 years are given below. If the interest rate is 15%, say whether each project is viable or not, and which is the best investment.Year Project A Project B1 15,000 5,0002 15,000 10,0003 15,000 20,0004 15,000 25,000All values are given in GH¢. b) A factory increase its production by 712% and produced 1290 tonnes. How many tonnes did she produce before? c) If we place GH¢100 in the savings account that yields 12% compounded quarterly, what nearest GH¢ would our investment grow to at the end of 5 years?
Question 17 Boyertown Industrial Tools is considering a 2-year project to improve its production efficiency. They have spent $25,000 over the previous year researching a new machine press. Buying the new machine press for $500,000 is estimated to result in $300,000 in annual pretax cost savings and will provide quarterly dividends of $2,500 to the shareholders. The press falls in the MACRS three-year class, and it will have a salvage value at the end of the project of $100,000. The press also requires an initial investment in spare parts inventory of $50,000, along with an additional $5,000 in inventory for each succeeding year of the project. If the tax rate is 35, what is the aftertax salvage value for the machine press? Property Class Year 3Year 5 year 7 year 1 33.33 20.00 14.29 2 44.45…
question 18 Nirvana Chip Designs has finished designing its next generation of chips, the XJ5000 series and is getting ready to start production. As the analyst on the project, you are required to prepare pro forma free cash flows. Which of the following are relevant to your analysis? a. Design cost for the chips b. Potential lost sales of the XJ4000 chips c. Proportional cost of the corporate jet lease d. Start-up investment in raw materials e. Upgrades to the chip fabrication facility required if the chip is produced f. Market research done to guide the development of the new chip g. Market value of land and buildings where new chip will be produced 1. Design cost for the chips. (Select the best choice below.) A. This is relevant because it is an investment in working capital. B. This is relevant as it represents cannibalization of existing sales. C. This is irrelevant because it is a sunk cost. D. This is irrelevant as it represents existing overhead.…
Mf2. Sunshine Oil & Gas is considering an investment in Perfect Lease. Given the following information, calculate the payback period (in months). Should Sunshine invest in Perfect Lease if management requires a payback period of less than 36 months? Acquisition cost of Perfect Lease $60,000 Drilling cost of one well $450,000 Estimated completion cost $600,000 Estimated selling price per bbl $55 Estimated lifting cost per bbl $20 State severance tax 6% Royalty interest 10% Estimated monthly production 750 bbls per month Payback period (in months, rounded to two decimal places): Based on payback, should Sunshine invest in Perfect Lease? (yes or no):
A1 Tripple A Manufacturing needs to acquire a piece of equipment which will cost the company $80,000. It is estimated that in six years’ time the equipment can be salvaged for $20,000. The company’s bank has agreed to advance funds for the entire purchase price at 8 percent per annum payable in equal installments over the six years. Alternatively, the machine could be leased over the six years from the manufacturer, by way of an operating lease with annual lease payments of $14,000. Triple A’s tax rate is 40 percent and its cost of capital is 15 percent. The equipment has a CCA rate of 20 percent. If the machine is owned, annual maintenance costs will be $500. Required: Advise Triple A which alternative they should choose, providing them with calculations to support your recommendation. NOTE: PLEASE DONOT SOLVE IN EXCEL
Question 6 (B/C Analysis): A) Construction Project You are planning to invest your money in a new project that will have a first cost of $1 million and an annual maintenance cost of $50,000 per year. The income of the project is expected to be $300,000 per year. The project will have an 10-year life. At an interest rate of 10% per year compounded, should the project be undertaken (Perform B/C Analysis)? B /C = B )Alternative Investment If there is another option which, is you invest the same amount (1,000,000) in an investment company that gives 3% per year rate of return, The investment will will be for 10-year . How much the investment company will give every year? Which option would be better?
Question 2 (Investment Decision Rules and Project Cash Flows) Consider a hypothetical economy that has NO tax. ABC Ltd. is considering investing in a 2-year project which is expected to generate the following year-end cash flows: C1 = $110 million, C2 = $115 million. The yearly discount rate for the project is 10%. The initial cost of the project is $200 million. (f) Now suppose that of the $200m initial expenditure, $50m was used for the purchase of a machine that has an estimated economic life of four years. The machine will be fully depreciated (i.e., zero book value at the end of the machine’s economic life) on a straight-line basis and expected to have a resale value of $35m at the end of the project. (i) Explain how this will affect the size of the terminal (end-of-project) cash flows. (ii) How will this affect the NPV and the acceptance/rejection of the project (as compared to part (a))? Show your calculations.
QUESTION TWO (2) Frank limited is considering buying a new machine which would have a useful life of 5 years at a cost of Gh¢ 100,000 and scrap value of Gh¢ 5,000. The machine will produce 50,000 units per annum of a new product with an estimated selling price of Gh¢3 per unit. Direct cost would be Gh¢ 1.75 per unit and annual fix cost including depreciation calculated on a straight line method would be Gh¢ 40,000. p.a. In years 1 and 2, special sales promotion expenditure, not included in the above costs would be incurred amounting to Gh¢ 10,000 and GH¢ 15,000 respectively. As a consequence of this project, investment by the company on debtors and stocks would increase during year 1 by Gh¢ 15,000 and Gh¢ 20,000 respectively and creditors would increase by Gh¢ 10,000 and would revert to their previous levels. Requirement Evaluate the project using the N.P.V method of investment appraisal, assuming the cost of capital…

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