Chapter 9, Problem 33P

Summary Introduction

(a)

To identify:

Incremental earnings from purchase of machine X.

Introduction:

Incremental earnings are the result of extra efforts or resources put in, during a specified period by a company, usually depicted as growth rate percentage, it reflects the additional income from previous period.

Summary Introduction

(b)

To identify:

Free cash flow from purchase of machine X.

Introduction:

Free Cash Flow refers to the cash available with the firm, which can be invested in assets. It is important to calculate before taking investment decision.

Summary Introduction

(c)

To identify:

Net present value of purchase of machine X.

Introduction:

Net Present Value refers the difference between present value of cash flows and present value of cash outflows.

Summary Introduction

(d)

To identify:

Net present value in the worst case and in best case.

Introduction:

Net Present Value refers the difference between present value of cash flows and present value of cash outflows.

Summary Introduction

(e)

To identify:

Break-even sales and cost of goods sold from expansion.

Introduction:

Break-even refers to the point at which firm did not gain or loss any amount that is it just cover its variable cost.

Summary Introduction

(f)

To identify:

The additional level of sales per year that would justify the purchasing of larger machine.

Introduction:

Free Cash Flow refers to the cash available with the firm, which can be invested in assets. It is important to calculate before taking investment decision.