A company is evaluating the investment in new machinery to manufacture a new product. Two alternatives...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
A company is evaluating the investment in new machinery to manufacture a new product. Two alternatives (Machine A and Machine B) are being considered. Estimates for the two machines are: Initial cost Useful life Residual value at the end of 5 years Annual profits (net of straight-line depreciation) The company has a cost of capital of 12% per annum. Discount factors: Year 1 2 3 4 10% 0.909 0.826 0.751 0.683 0.620 Machine A $800,000 12% 0.893 0.797 0.712 0.636 0.567 5 years $120,000 $100,000 15% 0.870 0.756 0.658 0.572 0.497 Machine B $760,000 5 years $60,000 $80,000 Required: Evaluate each machine using the following methods of capital appraisal: 20% 0.833 0.694 0.579 0.482 0.402 (i) Payback period in years. (ii) Net present value in $ (work to nearest $'000). (iii) Internal rate of return in % (use 12% and 20% as discount factors). (iv) Profitability index in %. A company is evaluating the investment in new machinery to manufacture a new product. Two alternatives (Machine A and Machine B) are being considered. Estimates for the two machines are: Initial cost Useful life Residual value at the end of 5 years Annual profits (net of straight-line depreciation) The company has a cost of capital of 12% per annum. Discount factors: Year 1 2 3 4 10% 0.909 0.826 0.751 0.683 0.620 Machine A $800,000 12% 0.893 0.797 0.712 0.636 0.567 5 years $120,000 $100,000 15% 0.870 0.756 0.658 0.572 0.497 Machine B $760,000 5 years $60,000 $80,000 Required: Evaluate each machine using the following methods of capital appraisal: 20% 0.833 0.694 0.579 0.482 0.402 (i) Payback period in years. (ii) Net present value in $ (work to nearest $'000). (iii) Internal rate of return in % (use 12% and 20% as discount factors). (iv) Profitability index in %.
Expert Answer:
Answer rating: 100% (QA)
To evaluate each machine using the provided methods of capital appraisal lets calculate the payback period net present value NPV internal rate of retu... View the full answer
Related Book For
Corporate Finance A Focused Approach
ISBN: 978-1439078082
4th Edition
Authors: Michael C. Ehrhardt, Eugene F. Brigham
Posted Date:
Students also viewed these accounting questions
-
The management of Metro Printers is considering a proposal to replace some existing equipment with a new highly efficient laser printer. The existing equipment has a current book value of $2,200,000...
-
Using the tables in Exhibits 263 and 264, determine the present value of the following cash flows, discounted at an annual rate of 15 percent: In Exhibits 263 In Exhibits 264 a. $10,000 to be...
-
Ques 1: What is the major complaint by firms concerning the Sarbanes-Oxley act of 2012? A. the legislative maximum allowable compensation for a CEO. B. the legal requirement to disclose project...
-
(a) Employing the intercept technique, determine the average grain size for the steel specimen whose microstructure is shown in Figure (a); use at least seven straight-line segments. (b) Estimate the...
-
A high diver leaves the end of a 5.0-m-high diving board and strikes the water 1.3s later, 3.0m beyond the end of the board. Considering the diver as a particle, determine (a) Her initial velocity,...
-
The rotation of rod OA about O is defined by the relation ? = 0.5e?0.8t sin 3?t, where ? and t are expressed in radians and seconds, respectively. Collar B slides along the rod so that its distance...
-
Define the differences between the respective authorities, responsibilities, and liabilities of an individual board member and those of the full board.
-
Near the end of 2015, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2015. To prepare a master budget for January,...
-
Calculate a total cost calculation for ACME Supply using the following data. Required to calculate total cost calculation for operating one DC and two DCs. Sales per year: $2,500,000 Property tax:...
-
Complete the payroll register for this pay period and update the Employee Earnings Record form for each employee with the corresponding information. The Step-2 of Form W-4 is unchecked. The amount...
-
Comments are enclosed in curly brackets {. . .}. Comments cannot be nested, however multiline comments are allowed. White space consists of blanks, tabs and newlines. Tasks Implement code for...
-
Enter the missing values to balance the equations. = Assets Liabilities + Equity = 28,000+29,000 75,000 = + 34,000 65,000 = 18,000 +
-
Sheridan Mining Company purchased land on February 1, 2025, at a cost of $975,900. It estimated that a total of 57,600 tons of mineral was available for mining. After it has removed all the natural...
-
You Spoiled It. Motorola, Inc., fired its CFO, Paul Liska, in January for a number of reasons related to his performance as stated by Motorola. Liska has filed a suit against Motorola for the...
-
ABC Company Network diagram(Topology) Figure 1 . ABC Company bought class C network: 192.168.10.0 /24 From the Figure 1 : a. Determine the number of subnets(network) needed b. What will be your new...
-
D. Sale is employed at an annual salary of $27,396 paid semi-monthly. The regular workweek is 36 hours. (a) Whats the regular salary per pay period? (b) What is the hourly rate of pay? (c) What is...
-
1: What made the CEO decide on reporting only the four ratios? 2: What are the possible consequences of the CEO's reporting decision? 3: As the controller, what advice would you give the CEO...
-
Differentiate the following terms/concepts: a. Personality types and money attitudes b. Planners and avoiders c. Moderating and adapting to biases d. "Perfectible judges" and "incorrigible judges"
-
From the standpoint of the borrower, is long-term or short-term credit riskier? Explain. Would it ever make sense to borrow on a short-term basis if short-term rates were above long-term rates?
-
What is a multinational corporation? Why do firms expand into other countries?
-
(1) Suppose investors raised their inflation expectations by 3 percentage points over current estimates as reflected in the 8% T-bill rate. What effect would higher inflation have on the SML and on...
-
Number the following activities from 1 to 5 in the order corresponding to the typical flow of cost in a manufacturing company: Record the transfer of raw materials into production. Record cost of...
-
Complete the following T-accounts: Materials Inventory 320 ? 18,120 250 Wages Payable 9,000 300 Work-in-Process Inventory Finished Goods Inventory 1,000 ? ? 1,500 ? ? 9,000 ? 500 1,200
-
Piper Consulting Company incurred the following during 2019: Calculate prime cost and conversion cost for Piper Consulting Company during 2019. Direct labor.. Overhead Selling expenses Administrative...
Study smarter with the SolutionInn App