Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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?

image text in transcribedimage text in transcribedimage text in transcribed

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

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

Financial Management Theory And Practice

Authors: Prasanna Chandra

7th Edition

0070656657, 978-0070656659

More Books

Students also viewed these Finance questions