Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

2. Banderas Corporation is considering the purchase of a machine that would cost $330,000 and would last for 9 years. At the end of 9

image text in transcribed
image text in transcribed
2. Banderas Corporation is considering the purchase of a machine that would cost $330,000 and would last for 9 years. At the end of 9 years, the machine would have a salvage value of $79,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $59,000. The company requires a minimum pretax return of 12% on all investment projects. Calculate the net present value of the project (show your work below): Should they accept the project? (Yes/No): 3. Dokes, Inc. is considering the purchase of a machine that would cost $440,000 and would last for 9 years. At the end of 9 years, the machine would have a salvage value of $62,000. The machine would reduce labor and other costs by $81,000 per year. Additional working capital of $8,000 would be needed immediately. All of this working capital would be recovered at the end of the life of the machine. The company requires a minimum pretax return of 13% on all investment projects. Calculate the net present value of the project (show your work below): Should they accept the project? (Yes/No): 4. Net Present Value Analysis of a Lease or Buy Decision Bear Products wants an airplane for use by its corporate staff. The airplane that the company wishes to acquire, a Boeing 777, can either be purchased or leased from the manufacturer. Bear Products' required rate of return is 18% Alternative 81: Purchase the airplane: If the Boeing 777 is purchased, then the costs incurred by the company would be as follows: $850,000 $9,000 Don't forget to includ this in your analysis Purchase cost of the plane Annual cost of servicing licenses & taxes Repairs First 3 years (cost per year): Fourth year Fifth year $3,000 $5,000 $10,000 The plane would be sold after 5 years for half of its original cost. Alternative #2: Lease the airplane: If the Boeing 777 is leased, then the costs incurred by the company would be as follows: Safety deposit in case of any damages (to be done at the start of the lease) Annual rental payment $50,000 $200,000 The plane would be returned to the manufacturer at the end of the 5-year lease agreement. (Assume that the safety deposit would NOT be returned to Bear Company.) Calculate the present value of the cash flows for each alternative below: Alternative #1: Alternative 2: Should Bear Company lease the plane or buy it

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Health Care Finance Economics And Policy For Nurses

Authors: Betty Rambur

2nd Edition

0826152538, 978-0826152534

More Books

Students also viewed these Finance questions

Question

Explain the factors that determine the degree of decentralisation

Answered: 1 week ago

Question

What Is acidity?

Answered: 1 week ago

Question

Explain the principles of delegation

Answered: 1 week ago

Question

State the importance of motivation

Answered: 1 week ago

Question

Discuss the various steps involved in the process of planning

Answered: 1 week ago