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For this assignment, most of my math is incorrect. I was following my text. However the drop downs are correct? Sweeney Manufacturing has a plant
For this assignment, most of my math is incorrect. I was following my text. However the drop downs are correct?
Sweeney Manufacturing has a plant where the equipment is essentially worn out. The equipment must be replaced, and Sweeney is considering two competing investment alternatives. The first alternative would replace the worn-out equipment with traditional production equipment; the second alternative uses contemporary technology and has computer-aided design and manufacturing capabilities. The investment and after-tax operating cash flows for each alternative are as follows: Traditional Contemporary Technology Year Equipment 0 $(1,003,650) $(3,999,050) 1 602,000 190,450 2 401,200 395,200 3 206,150 599,300 4 206,150 803,500 5 206,150 803,500 6 206,150 803,500 7 206,150 1,004,100 8 206,150 2,006,400 9 206,150 2,006,400 10 206,150 2,006,400 The company uses a discount rate of 18 percent for all of its investments. The company's cost of capital is 14 percent. Required: 1. Calculate the net present value for each investment using a discount rate of 18 percent. Round intermediate calculations and the final answers to the nearest dollar. If the NPV is negative, enter your answer as a negative value. NPV Traditional equipment $ 398,354.00 X Contemporary technology $ -441,079.00 X 2. Calculate the net present value for each investment using a discount rate of 14 percent. Round intermediate calculations and the final answers to the nearest dollar. NPV Traditional equipment 398,564.00 X Contemporary technology 568,974.00 X 3. Which rate should the company use to compute the net present value? The 14% cost of capital 4. Now, assume that if the traditional equipment is purchased, the competitive position of the firm will deteriorate because of lower quality (relative to competitors who did automate). Marketing estimates that the loss in market share will decrease the projected net cash inflows by 50 percent for Years 3-10. Recalculate the NPV of the traditional equipment given this outcome using a discount rate of 14 percent. Round intermediate calculations and your final answer to the nearest dollar. What is the NPV now? 201,052.00 X What is the decision now? Contemporary technology is preferred
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