P3 #1

would not have to me molding machine. With the new machine, the compan life of the buy small plastic parts to use in production. The estimated u S400,000. machi is 15 years, and the purchase price, including all setup charges, is pany's The resid value is estimated to be $40,000. The net addition to the com cash ual inflo a result of the savings from making the is estimated to be Better has decided on a minimum rate of of 70,000 a year 14 percent. (Hint: Use Table l and 2 in Appendix A.) REQUIRED i. Using the net method to evaluate this capital investment, determine whether the company should purchase the machine. Support your answer management had decided on a minimum rate of return of 16 percent, should the machine be purchased? Show computations to support your a Accounting Rate-of-Return and Payback Period P3. Raab Company is expanding its production facilities to include a new product line a sporty automotive tire rim. Tire rims can now be produced with little labor cost using new computerized machinery. The controller has advised management about two such machines. Details about each machine follow. HZT Machine XUS Machine Cost of machine $550,000 Residual value Net income 34,965 90,170 Annual net cash inflows 91.215 The company's minimum rate of return is 12 percent. The maximum pa period is six years. REQUIRED l. machine, compute the projected accounting rate of return. (Round centages to decimal place.) 2. Compute the payback period for each machine. (Round to one decimal place.) 3. AccoUNTING CONNECTION Based on the information from requirements i and 2, which machine should be purchased? Why? Capital Investment Decision: Comprehensive Edge Company's production vice president believes keeping up-to-date with tech p4. al changes is what makes the company successful and feels that a machine intro duced recently would fill an important need. The machine has estimated of our years, a purchase price of $250,000, and a residual value of The company ontroller has estimated average annual net income of S11,250 a the following cash s for the new machine Cash Flow Estimates Net Cash Inflows Cash outflows Cash Inflows $75,000 $250,000 $325.000