3 Managerial Accounting

BAK Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it possible for the company to bid on jobs that it currently isn't equipped to do. Estimates regarding each machine are provided below. Machine A Machine B Original cost $78,320 $181,100 Estimated life 8 years 8 years Salvage value 0 0 Estimated annual cash inflows $20,110 $40,280 Estimated annual cash outflows $4,860 $10,200 a. Calculate the net present value and profitability index of each machine. Assume a 9% discount rate. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answer for present value to 0 decimal places, e.g. 125 and profitability index to 2 decimal places, e.g. 10.50.) Machine A Machine B Net present value Profitability index b. Which machine should be purchased? should be purchased. Eisler Corporation is involved in the business of injection molding of plastics. It is considering the purchase of a new computeraided design and manufacturing machine for $431,800. The company believes that with this new machine it will improve productivity and increase quality, resulting in an increase in net annual cash flows of $114,098 for the next 6 years. Management requires a 10% rate of return on all new investments. (Refer the below table) a. Calculate the internal rate of return on this new machine. (Round answer to 0 decimal places, e.g. 10.) Internal rate of return % b. Should the investment be accepted? The investment be accepted. Pierre's Hair Salon is considering opening a new location in French Lick, California. The cost of building a new salon is $260,500. A new salon will normally generate annual revenues of $61,550, with annual expenses (including depreciation) of $41,300. At the end of 15 years the salon will have a salvage value of $77,000. Calculate the annual rate of return on the project. (Round answer to 0 decimal places, e.g. 125.) Annual rate of return % 60BAK Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it possible for the company to bid on jobs that it currently isn't equipped to do. Estimates regarding each machine are provided below. Machine A Machine B Original cost $78,320 $181,100 Estimated life 8 years 8 years Salvage value 0 0 Estimated annual cash inflows $20,110 $40,280 Estimated annual cash outflows $4,860 $10,200 a. Calculate the net present value and profitability index of each machine. Assume a 9% discount rate. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answer for present value to 0 decimal places, e.g. 125 and profitability index to 2 decimal places, e.g. 10.50.) Machine A Machine B Net present value Profitability index b. Which machine should be purchased? should be purchased. Eisler Corporation is involved in the business of injection molding of plastics. It is considering the purchase of a new computeraided design and manufacturing machine for $431,800. The company believes that with this new machine it will improve productivity and increase quality, resulting in an increase in net annual cash flows of $114,098 for the next 6 years. Management requires a 10% rate of return on all new investments. (Refer the below table) a. Calculate the internal rate of return on this new machine. (Round answer to 0 decimal places, e.g. 10.) Internal rate of return % b. Should the investment be accepted? The investment be accepted. Pierre's Hair Salon is considering opening a new location in French Lick, California. The cost of building a new salon is $260,500. A new salon will normally generate annual revenues of $61,550, with annual expenses (including depreciation) of $41,300. At the end of 15 years the salon will have a salvage value of $77,000. . (Round answer to 0 decimal places, e.g. 125.) Annual rate of return %