Compo Research plans to purchase a new centrifuge machine for its New Mexico facility. The machine costs $158,000 and is expected to have a useful life of 9 years, with a terminal disposal value of $3,000. Savings in cash operating costs are expected to be $37,500 per year. However, additional working capital is needed to keep the machine running efficiently. The working capital must continually be replaced, so an investment of $12,000 needs to be maintained at all times, but this investment is fully recoverable (will be "cashed in") at the end of the useful life. Compo Research's required rate of return is 12%. Ignore income taxes in your analysis. Assume all cash flows occur at year-end except for initial investment amounts. Compo Research uses straight-line depreciation for its machines. Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table Read the requirements. Requirement 1. Calculate net present value. (Use factors to three decimal places, X.XXX, and use a minus sign or parentheses for a negative net present value. Enter the net present value of the investment rounded to the nearest whole dollar.) - The net present value is Requirements 1. Calculate net present value. 2. Calculate internal rate of return. 3. Calculate accrual accounting rate of return based on net initial investment. 4. Calculate accrual accounting rate of return based on average investment. 5. You have the authority to make the purchase decision. Why might you be reluctant to base your decision on the DCF methods? Sydra's Bakery plans to purchase a new oven for its store. The oven has an estimated useful life of 4 years. The estimated pretax cash flows for the oven are as shown in the table that follows, with no anticipated change in working capital. Sydra's Bakery has a 10% after-tax required rate of return and a 38% income tax rate. Assume depreciation is calculated on a straight-line basis for tax purposes using the initial investment in the oven and its estimated terminal disposal value. Assume all cash flows occur at year-end except for initial investment amounts. Requirement 1. Calculate (a) net present value, (b) payback period, and (c) internal rate of return. a. Net present value. (Use factors to three decimal places, X.XXX. Round intermediary calculations and your final answer to the nearest whole dollar.) The net present value is Data table Lequirements A B D E F 1 Relevant Cash Flows at End of Each Year 1. Calculate (a) net present value, (b) payback period, and (c) internal rate of return 2. Calculate accrual accounting rate of return based on net initial investment. 2 Year 0 Year 1 Year 2 Year 3 Year 4 $ (201,000) 3 Initial oven investment Annual cash flows from operations 4 (excluding the depreciation effect) 5 Cash flow from terminal disposal of oven $ 79,000 $ 79,000 $ 79,000 $ 79,000 Print Done $ 3,000 Compo Research plans to purchase a new centrifuge machine for its New Mexico facility. The machine costs $158,000 and is expected to have a useful life of 9 years, with a terminal disposal value of $3,000. Savings in cash operating costs are expected to be $37,500 per year. However, additional working capital is needed to keep the machine running efficiently. The working capital must continually be replaced, so an investment of $12,000 needs to be maintained at all times, but this investment is fully recoverable (will be "cashed in") at the end of the useful life. Compo Research's required rate of return is 12%. Ignore income taxes in your analysis. Assume all cash flows occur at year-end except for initial investment amounts. Compo Research uses straight-line depreciation for its machines. Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table Read the requirements. Requirement 1. Calculate net present value. (Use factors to three decimal places, X.XXX, and use a minus sign or parentheses for a negative net present value. Enter the net present value of the investment rounded to the nearest whole dollar.) - The net present value is Requirements 1. Calculate net present value. 2. Calculate internal rate of return. 3. Calculate accrual accounting rate of return based on net initial investment. 4. Calculate accrual accounting rate of return based on average investment. 5. You have the authority to make the purchase decision. Why might you be reluctant to base your decision on the DCF methods? Sydra's Bakery plans to purchase a new oven for its store. The oven has an estimated useful life of 4 years. The estimated pretax cash flows for the oven are as shown in the table that follows, with no anticipated change in working capital. Sydra's Bakery has a 10% after-tax required rate of return and a 38% income tax rate. Assume depreciation is calculated on a straight-line basis for tax purposes using the initial investment in the oven and its estimated terminal disposal value. Assume all cash flows occur at year-end except for initial investment amounts. Requirement 1. Calculate (a) net present value, (b) payback period, and (c) internal rate of return. a. Net present value. (Use factors to three decimal places, X.XXX. Round intermediary calculations and your final answer to the nearest whole dollar.) The net present value is Data table Lequirements A B D E F 1 Relevant Cash Flows at End of Each Year 1. Calculate (a) net present value, (b) payback period, and (c) internal rate of return 2. Calculate accrual accounting rate of return based on net initial investment. 2 Year 0 Year 1 Year 2 Year 3 Year 4 $ (201,000) 3 Initial oven investment Annual cash flows from operations 4 (excluding the depreciation effect) 5 Cash flow from terminal disposal of oven $ 79,000 $ 79,000 $ 79,000 $ 79,000 Print Done $ 3,000
