CONNECT ONLINE ACCESS F/MANAGERIAL ACC.
6th Edition
ISBN: 9781264445356
Author: Noreen
Publisher: MCG
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Chapter 7A, Problem 7A.5E
To determine
Concept Introduction:
The time value of money is a concept that is applied to evaluate the projects having future cash flows. This concept is mostly used in the capital budgeting analysis to evaluate the worth of the projects or investment opportunities.
the maximum price for investment option.
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Exercise 14A-5 (Algo) Basic Present Value Concepts [LO14-7]
The Atlantic Medical Clinic can purchase a new computer system that will save $7,000 annually in billing costs. The
computer system will last for nine years and have no salvage value.
Click here to view Exhibit 148-1 and Exhibit 14B-2. to determine the appropriate discount factor(s) using tables.
Required:
What is the maximum price (i.e., the price that exactly equals the present value of the annual savings in billing costs) that
the Atlantic Medical Clinic should be willing to pay for the new computer system if the clinic's required rate of return is:
(Round your final answer to the nearest whole dollar amount.)
1. Seven percent
2. Eleven percent
Maximum Price
5/ a/ You propose to replace windows to save energy. With a discount rate of 6%, what yearly
energy savings are required to offset the $25,000 project cost? Consider an investment period
of 10 years, and a lifetime of the windows of 30 years
b/ Assume that the windows save the amount of energy calculated in 5/a. If the windows
would have needed to be replaced anyways at a cost of $20,000 for standard efficiency
windows, what is the ROI and Payback for upgrading the windows to the energy efficient model
used in Sa/ for the upgrade cost of $5,000?
Question 9, P1-4 (book/static)
Part 1 of 5
Marginal cost-benefit analysis and the goal of the firm Wendy Winter needs to determine whether the current warehouse system should be upgraded to a new system. The new system would require an initial cash outlay of $250,000. The current system could be sold for $55,000. The monetary benefit of the
new system over the next five years is $325,000, while the monetary benefit of the current system over the same period is $125,000. Furthermore, it is expected that the firm's stock price will increase if the new system is implemented because it will make the firm more cost efficient and cost effective in the long
run.
a. Identify and describe the analysis Wendy should use to make the decision.
b. Calculate the marginal benefit of the proposed new warehouse system.
c. Calculate the marginal cost of the proposed new warehouse system.
d. What should Wendy's recommendation to the firm be regarding the new warehouse system? Explain your recommendation.…
Chapter 7A Solutions
CONNECT ONLINE ACCESS F/MANAGERIAL ACC.
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- Problem 9 A contractor is considering the following three alternatives: a. Purchase a new microcomputer system for $15,000. The system is expected to last 6 years with salvage value of $1,000. b. Lease a new microcomputer system for $3,000 per year, payable in advance. The system should last 6 years. c. Purchase a used microcomputer system for $8,200. It is expected to last 3 with no salvage value. Use a common-multiple-of-lives approach. If MARR of 8% is used, which alternative should be selected using a discounted present worth analysis? If the MARR is 12%, which alternate should be selected? yearsarrow_forwardProblem 04.055 Continuous Compounding Because of a chronic water shortage in California, new athletic fields must use artificial turf or xeriscape landscaping. If the value of the water saved each month is $4,500, how much can a private developer afford to spend now on artificial turf provided he must recover his investment in 5 years. Use an interest rate of 11% per year, compounded continuously? The private developer can afford to spend $arrow_forwardThe Atlantic Medical Clinic can purchase a new computer system that will save $6,000 annually in billing costs. The computer system will last for six years and have no salvage value. Required: What is the maximum price (i.e., the price that exactly equals the present value of the annual savings in billing costs) that the Atlantic Medical Clinic should be willing to pay for the new computer system if the clinic's required rate of return is: (Round your final answer to the nearest whole dollar amount.) Maximum Price 1. Nine percent 2. Fourteen percentarrow_forward
- 10.19 The makers of Lifestraw, a filter designed to allow the user to drink water safely from a stream, have a financial decision to make. Implementing an au- tomated assembly process will cost $5000 per year for the next6 years. The interest rate is 15% per and the inflation rate is 5% per year. (a) What is the amount they can spend now in lieu of these future costs? Solve using factors and a spread- sheet. (b) If only $12,000 is available now, what is the maximum equivalent amount that can be spent for each of the 6 years? How does this compare year with the $5000 estimate?arrow_forwardYou received no credit for this question in the previous attempt. Problem 10-28 Equivalent Annual Cost [LO4] Light emitting diodes (LED) light bulbs have become required in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent light bulb costs $.48 and lasts 1,000 hours. A 15-watt LED, which provides the same light, costs $3.55 and lasts for 12,000 hours. A kilowatt-hour of electricity costs $.124. A kilowatt-hour is 1,000 watts for 1 hour. If you require a return of 10 percent and use a light fixture 500 hours per year, what is the equivalent annual cost of each light bulb? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) 60-watt incandescent light bulb LED light bulb $ $ 6.18 4.87arrow_forwardThe Atlantic Medical Clinic can purchase a new computer system that will save $7,000 annually in billing costs. The computer system will last for nine years and have no salvage value. Click here to view Exhibit 14B-1 and Exhibit 14B-2 to determine the appropriate discount factor(s) using tables. Required: What is the maximum price (l.e., the price that exactly equals the present value of the annual savings in billing costs) Atlantic Medical Clinic should be willing to pay for the new computer system if the clinic's required rate of return is: Note: Round your final answer to the nearest whole dollar amount. Maximum Price 1. Seven percent 2. Eleven percentarrow_forward
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