Wildhorse's Custom Construction Company is considering three new projects, each requiring an equipment investment of $26,840.Each project will last for 3 years and produce the following net annual cash flows.YearAABBCC1$8,540$12,200$15,860210,98012,20014,640314,64012,20013,420Total $34,160 $36,600$43,920The equipment's salvage value is zero, and Wildhorse uses straight-line depreciation. Wildhorse will not accept any project with a cashpayback period over 2 years. Wildhorse's required rate of return is 12%. Click here to view PV table.(a)Compute each project's payback period. (Round answers to 2 decimal places, e.g. 15.25.)AABByearsyearsCCyears

Approach to solving the question: For better clarity of the solution, I have attached the Excel…

Answered: Wildhorse's Custom Construction Company…

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 22E

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Manzer Enterprises is considering two independent investments: A new automated materials handling system that costs 900,000 and will produce net cash inflows of 300,000 at the end of each year for the next four years. A computer-aided manufacturing system that costs 775,000 and will produce labor savings of 400,000 and 500,000 at the end of the first year and second year, respectively. Manzer has a cost of capital of 8 percent. Required: 1. Calculate the IRR for the first investment and determine if it is acceptable or not. 2. Calculate the IRR of the second investment and comment on its acceptability. Use 12 percent as the first guess. 3. What if the cash flows for the first investment are 250,000 instead of 300,000?
Gallant Sports s considering the purchase of a new rock-climbing facility. The company estimates that the construction will require an initial outlay of $350,000. Other cash flows are estimated as follows: Assuming the company limits its analysis to four years due to economic uncertainties, determine the net present value of the rock-climbing facility. Should the company develop the facility if the required rate of return is 6%?
The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
Determine cash flows Natural Foods Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The new garden tool is expected to generate additional annual sales of 5,000 units at 18 each. The new manufacturing equipment will cost 120,000 and is expected to have a 10-year life and a 17,000 residual value. Selling expenses related to the new product are expected to be 3% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis: Determine the net cash flows for the first year of the project, Years 29, and for the last year of the project.
Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?

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