Answered: The management of Kunkel Company is… | bartleby

Fundamentals of Financial Management (MindTap Course List)

Fundamentals of Financial Management (MindTap Course List)

14th Edition

ISBN:9781285867977

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter12: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 10P: REPLACEMENT ANALYSIS The Dauten Toy Corporation currently uses an injection molding machine that was...

See similar textbooks

Related questions

Concept explainers

Question

Exercise 14-2 (Algo) Net Present Value Analysis [LO14-2]

The management of Kunkel Company is considering the purchase of a $21,000 machine that would reduce operating costs by $5,000 per year. At the end of the machine’s five-year useful life, it will have zero salvage value. The company’s required rate of return is 12%.

Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table.

Required:

1. Determine the net present value of the investment in the machine.

2. What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine?

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Blurred answer

Knowledge Booster

Capital Budgeting

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

REPLACEMENT CHAIN The Fernandez 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 eight years. Machine A costs 10 million but will provide after-tax inflows of 4 million per year for 4 years. If Machine A were replaced, its cost would be 12 million due to inflation and its cash inflows would increase to 4.2 million due to production efficiencies. Machine B costs 15 million and will provide after-tax inflows of 3.5 million per year for 8 years. If the WACC is 10%, which machine should be acquired? Explain.
REPLACEMENT ANALYSIS St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings before depreciation from 24,000 to 46,000 per year. The new machine will cost 80,000; and it will have an estimated life of 8 years and no salvage value. The new machine will be depreciated over its 5-year MACRS recovery period, so the applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. The applicable corporate tax rate is 40%, and the firm's WACC is 10%. The old machine has been fully depreciated and has no salvage value. Should the old riveting machine be replaced by the new one? Explain your answer.
REPLACEMENT ANALYSIS The Dauten Toy Corporation currently uses an injection molding machine that was purchased 2 years ago. This machine is being depreciated on a straight-line basis, and it has 6 years of remaining life. Its current book value is 2,100, and it can be sold for 2,500 at this time. Thus, the annual depreciation expense is 2,100/6 = 350 per year. If the old machine is not replaced, it can be sold for 500 at the end of its useful life. Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. This machine falls into the MACRS 5-year class so the applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year. The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 40%, and its WACC is 15%. Should it replace the old machine?

Recommended textbooks for you

Fundamentals of Financial Management (MindTap Cou…

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781285867977

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Fundamentals of Financial Management, Concise Edi…

Fundamentals of Financial Management, Concise Edi…

Finance

ISBN:

9781305635937

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Fundamentals of Financial Management (MindTap Cou…

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Fundamentals of Financial Management (MindTap Cou…

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781285867977

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Fundamentals of Financial Management, Concise Edi…

Fundamentals of Financial Management, Concise Edi…

Finance

ISBN:

9781305635937

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Fundamentals of Financial Management (MindTap Cou…

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

EBK CFIN

Finance

ISBN:

9781337671743

Author:

BESLEY

Publisher:

CENGAGE LEARNING - CONSIGNMENT

SEE MORE TEXTBOOKS