Adequate information: Rent = $75,000 Building modification for Product A = $115,000 Building modification for Product B = $160,000 Initial cash outlay for equipment (Equipment) for Product A = $340,000 Initial cash outlay for equipment (Equipment) for Product B = $345,000 Estimated useful life of Product A = 15 years Estimated useful life of Product B = 15 years Annual pretax cash revenue (Revenue) of Product A = $275,000 Annual pretax cash revenue (Revenue) of Product B = $295,000 Annual pretax expenditure (Expenditure) of Product A = $115,000 Annual pretax expenditure (Expenditure) of Product B = $130,000 Restoration cost of Product A = $75,000 Restoration cost of Product B = $85,000 Tax rate = 21%, 0.21 Required rate of return , r = 12% or 0.12 To recommend: The product that should be chosen by the company. Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow . The decision criteria of net present value are that in the case of the mutually exclusive project, the project having the higher net present value should be selected.

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Answer 1

Question

Chapter 6, Problem 38QAP

Summary Introduction

Adequate information:

Rent = $75,000

Building modification for Product A = $115,000

Building modification for Product B = $160,000

Initial cash outlay for equipment (Equipment) for Product A = $340,000

Initial cash outlay for equipment (Equipment) for Product B = $345,000

Estimated useful life of Product A = 15 years

Estimated useful life of Product B = 15 years

Annual pretax cash revenue (Revenue) of Product A = $275,000

Annual pretax cash revenue (Revenue) of Product B = $295,000

Annual pretax expenditure (Expenditure) of Product A = $115,000

Annual pretax expenditure (Expenditure) of Product B = $130,000

Restoration cost of Product A = $75,000

Restoration cost of Product B = $85,000

Tax rate = 21%, 0.21

Required rate of return, r = 12% or 0.12

To recommend: The product that should be chosen by the company.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

The decision criteria of net present value are that in the case of the mutually exclusive project, the project having the higher net present value should be selected.

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Answer 2

Question

Chapter 6, Problem 38QAP

Summary Introduction

Adequate information:

Rent = $75,000

Building modification for Product A = $115,000

Building modification for Product B = $160,000

Initial cash outlay for equipment (Equipment) for Product A = $340,000

Initial cash outlay for equipment (Equipment) for Product B = $345,000

Estimated useful life of Product A = 15 years

Estimated useful life of Product B = 15 years

Annual pretax cash revenue (Revenue) of Product A = $275,000

Annual pretax cash revenue (Revenue) of Product B = $295,000

Annual pretax expenditure (Expenditure) of Product A = $115,000

Annual pretax expenditure (Expenditure) of Product B = $130,000

Restoration cost of Product A = $75,000

Restoration cost of Product B = $85,000

Tax rate = 21%, 0.21

Required rate of return, r = 12% or 0.12

To recommend: The product that should be chosen by the company.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

The decision criteria of net present value are that in the case of the mutually exclusive project, the project having the higher net present value should be selected.

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Answer 3

Question

Chapter 6, Problem 38QAP

Summary Introduction

Adequate information:

Rent = $75,000

Building modification for Product A = $115,000

Building modification for Product B = $160,000

Initial cash outlay for equipment (Equipment) for Product A = $340,000

Initial cash outlay for equipment (Equipment) for Product B = $345,000

Estimated useful life of Product A = 15 years

Estimated useful life of Product B = 15 years

Annual pretax cash revenue (Revenue) of Product A = $275,000

Annual pretax cash revenue (Revenue) of Product B = $295,000

Annual pretax expenditure (Expenditure) of Product A = $115,000

Annual pretax expenditure (Expenditure) of Product B = $130,000

Restoration cost of Product A = $75,000

Restoration cost of Product B = $85,000

Tax rate = 21%, 0.21

Required rate of return, r = 12% or 0.12

To recommend: The product that should be chosen by the company.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

The decision criteria of net present value are that in the case of the mutually exclusive project, the project having the higher net present value should be selected.

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Answer 4

Question

Chapter 6, Problem 38QAP

Summary Introduction

Adequate information:

Rent = $75,000

Building modification for Product A = $115,000

Building modification for Product B = $160,000

Initial cash outlay for equipment (Equipment) for Product A = $340,000

Initial cash outlay for equipment (Equipment) for Product B = $345,000

Estimated useful life of Product A = 15 years

Estimated useful life of Product B = 15 years

Annual pretax cash revenue (Revenue) of Product A = $275,000

Annual pretax cash revenue (Revenue) of Product B = $295,000

Annual pretax expenditure (Expenditure) of Product A = $115,000

Annual pretax expenditure (Expenditure) of Product B = $130,000

Restoration cost of Product A = $75,000

Restoration cost of Product B = $85,000

Tax rate = 21%, 0.21

Required rate of return, r = 12% or 0.12

To recommend: The product that should be chosen by the company.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

The decision criteria of net present value are that in the case of the mutually exclusive project, the project having the higher net present value should be selected.

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Answer 5

Chapter 6, Problem 38QAP

Summary Introduction

Adequate information:

Rent = $75,000

Building modification for Product A = $115,000

Building modification for Product B = $160,000

Initial cash outlay for equipment (Equipment) for Product A = $340,000

Initial cash outlay for equipment (Equipment) for Product B = $345,000

Estimated useful life of Product A = 15 years

Estimated useful life of Product B = 15 years

Annual pretax cash revenue (Revenue) of Product A = $275,000

Annual pretax cash revenue (Revenue) of Product B = $295,000

Annual pretax expenditure (Expenditure) of Product A = $115,000

Annual pretax expenditure (Expenditure) of Product B = $130,000

Restoration cost of Product A = $75,000

Restoration cost of Product B = $85,000

Tax rate = 21%, 0.21

Required rate of return, r = 12% or 0.12

To recommend: The product that should be chosen by the company.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

The decision criteria of net present value are that in the case of the mutually exclusive project, the project having the higher net present value should be selected.

Answer 6

Chapter 6, Problem 38QAP

Summary Introduction

Adequate information:

Rent = $75,000

Building modification for Product A = $115,000

Building modification for Product B = $160,000

Initial cash outlay for equipment (Equipment) for Product A = $340,000

Initial cash outlay for equipment (Equipment) for Product B = $345,000

Estimated useful life of Product A = 15 years

Estimated useful life of Product B = 15 years

Annual pretax cash revenue (Revenue) of Product A = $275,000

Annual pretax cash revenue (Revenue) of Product B = $295,000

Annual pretax expenditure (Expenditure) of Product A = $115,000

Annual pretax expenditure (Expenditure) of Product B = $130,000

Restoration cost of Product A = $75,000

Restoration cost of Product B = $85,000

Tax rate = 21%, 0.21

Required rate of return, r = 12% or 0.12

To recommend: The product that should be chosen by the company.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

The decision criteria of net present value are that in the case of the mutually exclusive project, the project having the higher net present value should be selected.

Answer 7

Chapter 6, Problem 38QAP

Summary Introduction

Adequate information:

Rent = $75,000

Building modification for Product A = $115,000

Building modification for Product B = $160,000

Initial cash outlay for equipment (Equipment) for Product A = $340,000

Initial cash outlay for equipment (Equipment) for Product B = $345,000

Estimated useful life of Product A = 15 years

Estimated useful life of Product B = 15 years

Annual pretax cash revenue (Revenue) of Product A = $275,000

Annual pretax cash revenue (Revenue) of Product B = $295,000

Annual pretax expenditure (Expenditure) of Product A = $115,000

Annual pretax expenditure (Expenditure) of Product B = $130,000

Restoration cost of Product A = $75,000

Restoration cost of Product B = $85,000

Tax rate = 21%, 0.21

Required rate of return, r = 12% or 0.12

To recommend: The product that should be chosen by the company.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

The decision criteria of net present value are that in the case of the mutually exclusive project, the project having the higher net present value should be selected.

Answer 8

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Answer 9

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Answer 10

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Answer 11

Ch. 6 - Opportunity Cost In the context of capital...Ch. 6 - Prob. 2CQ Ch. 6 - Incremental Cash Flows Your company currently...Ch. 6 - Depreciation Given the choice, would a firm prefer...Ch. 6 - Prob. 5CQ Ch. 6 - Prob. 6CQ Ch. 6 - Equivalent Annual Cost When is EAC analysis...Ch. 6 - Prob. 8CQ Ch. 6 - Capital Budgeting Considerations A major college...Ch. 6 - To answer the next three questions, refer to the...

Solution Summary: The author calculates the NPV of the decision to modify the building to produce Product A: Year 1-14Year 15Revenue 275,000

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Chapter 6 Solutions