The TechGuide Company produces and sells 7,500 modular computer desks per year at a selling price of $750 each. Its current production equipment, purchased for $1,800,000 and with a five-year useful life, is only two years old. It has a terminal disposal value of $0 and is depreciated on a straight-line basis. The equipment has a current disposal price of $450,000. However, the emergence of a new molding technology has led TechGuide to consider either up- grading or replacing the production equipment. The following table presents data for the two alternatives: Home Insert Page Layout Formulas Data Review Upgrade $3,000,000 Replace $4,800,000 2 One-time equipment costs 3 Variable manufacturing cost per desk 4 Remaining useful life of equipment (in years) 5 Terminal disposal value of equipment 150 75 3 3 24 24

(Ignore income taxes in this problem.)  Your Company has a telephone system that is in poor condition. The system must be either overhauled or replaced with a new system. The following data have been gathered concerning these two alternatives:       Present System Proposed New System   Purchase cost when new $100,000 $110,000   Accumulated depreciation 90,000     Overhaul cost needed now 80,000     Working capital required   50,000   Annual cash operating costs 30,000 20,000   Salvage value now of old system   10,000   Salvage value in 8 years 2,000 15,000   Your Company uses a 12% discount rate and the total cost approach to capital budgeting analysis. Both alternatives are expected to have a useful life of eight years.  What is the net present value of the new system alternative?  Enter your answer without dollar signs.  If the NPV is negative enter with a minus sign in front.

What is not a disadvantage of using the Payback Period Method? Hard to calculate O Ignores time value of money Uses an arbitrary benchmark O Biased against long term project None of the above

solve this parctie problem

I also have some confuse for the decision: system B is more beneficial then system A due to lower negative NPV from system A.  Should we need compare with negative NPV or cost per year? For negative NPV, system A ($541,843)is lower negative NPV than system B($706,984.82). On the other hand, system B ($167,116.14) is lower cost of each year than system A ($174,652.85). Thank you ~

TLT Ltd is considering the purchase of a new machine for use in its production process. Management has developed three alternative proposals to help evaluate the machine purchase. Only one of these proposals can be implemented. Proposals A and B both have the same cost to set up, but the output from proposal A (as measured by future net cash flows) commences at a high rate and then declines over time, while Proposal B starts at a low rate and then increases over time. Proposal C involves buying two of the machines considered under proposal B. That is, proposal C is simply Proposal B scaled by a factor of two. Proposal C results in net cash flows which are similar in magnitude to proposal A's net cash flows in the first two years. The estimated net cash flows, internal rates of return and net present values at 9% and 11% for each proposal are given in the following table. Proposal A -$290,000 $100,000 $90,000 Proposal B -$290,000 $40,000 $50,000 Proposal C -$580,000 $80,000 $100,000 End…

Basic NPV methods tell us that the value of a project today is NPV0. Time value of money issues also lead us to believe that if we choose not to do the project that it will be worth NPV1 one period from now, such that NPV0 > NPV1.  Why then do we see some firms choosing to defer taking on a project?

Modified internal rate of return (MIRR) The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project’s IRR. Consider the following situation: Green Caterpillar Garden Supplies Inc. is analyzing a project that requires an initial investment of $2,225,000. The project’s expected cash flows are: Year Cash Flow Year 1 $350,000 Year 2 –125,000 Year 3 450,000 Year 4 450,000   Green Caterpillar Garden Supplies Inc.’s WACC is 7%, and the project has the same risk as the firm’s average project. Calculate this project’s modified internal rate of return (MIRR): -12.63%   26.46%   30.64%   29.24%     If Green Caterpillar Garden Supplies Inc.’s managers select projects based on the MIRR criterion,…

he IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project’s IRR. Consider the following situation: Green Caterpillar Garden Supplies Inc. is analyzing a project that requires an initial investment of $3,000,000. The project’s expected cash flows are: Year Cash Flow Year 1 $275,000 Year 2 –150,000 Year 3 475,000 Year 4 400,000   Green Caterpillar Garden Supplies Inc.’s WACC is 8%, and the project has the same risk as the firm’s average project. Calculate this project’s modified internal rate of return (MIRR): 15.88%   14.21%   18.39%   -20.35%     If Green Caterpillar Garden Supplies Inc.’s managers select projects based on the MIRR criterion, they should    this independent project.…

Garden-Grow Products is considering a new investment whose data are shown below. The equipment would be depreciated on a straight-line basis over the project's 3-year life, would have a zero salvage value, and would require some additional working capital that would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's life. What is the project's NPV? (Hint: Cash flows are constant in Years 1 to 3.) Project cost of capital (r) Net investment in fixed assets (basis) Required new working capital Straight-line deprec. rate Sales revenues, each year Operating costs (excl. deprec.), each year Tax rate a. $31,573 b. $30,069 c. $36,550 d. $34,809 e. $33,152 10.0% $75,000 $15,000 33.333% $75,000 $25,000 25.0%