Follow the format shown in Exhibit 128.1 and Exhibit 128.2 as you complete the requirements below. Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows. a. Cuenca Company is considering the purchase of new equipment that wilf speed up the process for producing flash drives. The equibment will cort s7,200.000 and have a life of 5 years with no expected salvage value. The expected cash flows associated with the project follow: b. Kathy Shorts is evaluating an investment in an information system that will save $240,000 per year, She estimates that the system will last 10 years, The system Will cost $1,248,000. Her company's cost of capital is 10%. c. Elmo Enterprises just announced that a new plant would be built in Helper, Utah. Elmo told its stockholders that the plant has an expected ife of 15 years and an expected IRR equal to 25%. The cost of building the plant is expected to be $2,880,000. Required: 1. Calculate the IRR for Cuenca Company. The company's cost of capital is 16%. Round your answer to the nearest percent. Should the new equipment be purchased? 2. Calculate Kathy Short's IRR. Round your answer to the nearest percent. should she acouire the new system? a. Cuenca Company is considering the purchase of new equipment that will speed up the process for producing fiash drives. The equipment will cost s7,200,000 and have a llfe of 5 years with no expected salvage value. The expected cash flows associated with the project follow: b. Kathy Shorts is evaluating an investment in an information system that will save $240,000 per year. She estimates that the system will last 10 years. The system will cost $1,248,000. Her company's cost of capital is 10%. c. Elmo Enterprises just announced that a new plant would be built in Helper, Utah. Elmo told its stockholders that the plant has an expected life of 15 years and an expected IRR equal to 25%. The cost of bulliding the piant is expected to be $2,880,000. Required: 1. Colculate the IRR for Cuenca Company. The company's cost of capital is 16%. Round your answer to the nearest percent. \%o Should the new equipment be purchased? 2. Calculate Kathy Short's IRR. Round your answer to the nearest percent, 46 Should she acquire the new system? 3. What should be Elmo Enterprises' expected annual cash flow from the plant? Round your answer to the nearest dollar. Net Present Value and Competing Projects For discount factors use Exhibit 128.1 and Exhibit 12B.2. Spiro Hospital is investigating the possibility of investing in new dialysis equipment. Two local manufacturers of this equipment are being considered as sources of the equipment. After-tax cash inflows for the two competing projects are as follows: Both projects require an initial investment of $560,000. In both cases, assume that the equipment has a life of 5 years with no salvage value. Required: Round present value calculations and your final answers to the nearest dollar. 1. Assuming a discount rate of 10%, compute the net present value of each plece of equipment. 2. A third option has surfaced for equipment purchased from an out-of-state supplier. The cost is also $560,000, but this equipment will produce even cash flows over its 5 -year life. What must the annual cash flow be for this equipment to be selected over the other two? Assame a 10% discount rate. per year
