Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Planters Products enjoys a steadily demand for peanuts, Revenues from the roasted peanuts are $ 50 million per year, and production costs are $ 47.

Planters Products enjoys a steadily demand for peanuts, Revenues from the roasted peanuts are $ 50 million per year, and production costs are $ 47. 5 million. However, the precision Munster deshelling machines that are used in the production process are coming to the end of their useful life. One possibility is simply to replace each existing machine with a new Munster, These machines would cost $ 800,000 each and would not involve any additional operating costs. The alternative is to buy 10 centrally controlled stillborn deshelling machines, Skillboros cost $ 1. 2 million each, but compared with the Munster, they would produce a total saving in operator and material costs of $ 1 million a year. Moreover, the Skillboro is sturdily built and would last 10 years, compared with an estimated 7-year life for the Munster Planters opportunity cost of capital is 15%.

Analyzes in the desalination division would like you to create a spreadsheet, which shows the forecast of total cash flows over the life of each machine, Planters' standard procedures for assessing capital investments involve calculating net present value, internal rate of retur, and payback period so you will need to calculate all three (for each machine) in your spreadsheet Finally, (also in your spreadsheet), you will need to recommend that Planters purchase either the Munster machines or the Skillboro machines.

It should be an Excel spreadsheet with some type of layout similar (or identical with numbers, of course) to the one below. You can use formulas for NPV (= NPV (rate, B8: B14) - B7 (IRR) IRR (B7: B14))

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

The Infographic Guide To Personal Finance

Authors: Michele Cagan CPA, Elisabeth Lariviere

1st Edition

1507204663, 978-1507204665

More Books

Students also viewed these Finance questions