Question
Question 1 and Question 2 using the following scenario: Cawton Inc. purchased a machine that will be used to produce nylon belt pouches: Cost of
Question 1 and Question 2 using the following scenario:
Cawton Inc. purchased a machine that will be used to produce nylon belt pouches:
Cost of machine: $75,000 (installation is an additional $10,000)
Sale price of the old machine: $15,000
Life: 5 Years
Salvage Value: $2,000
Maintenance Required: $10,000 at the end of the third year
Production and sales: 25,000 pouches per year
Sales price per pouch $2.75
Direct material $ 0.70
Direct labor and Overhead cost $ 1.05
1. What is the net initial cashflow incurred by Cawton Inc. to start the project? (Answer - $70,000)
2. What is the net cash flow due to this project (ignoring the time value of money)? (Anwer - $47,000)
3.Suppose you are depositing an amount today in an account that earns 6% interest, compounded annually. If your goal is to have $5,000 in the account at the end of six years, how much must you deposit in the account today? Answer - $3525
4.Project executives from your organization are considering the selection of a project for their portfolio. The corporate CFO informs that the project will produce a one-time benefit of $900,000 three years from now. The interest rate at the bank is 11% per year. How much would you need to invest in the bank now to obtain the same benefit? (answer = $658,080)
5. What is the present value of an offer of $14,000 one year from now if the interest rate is 11% per year compounded monthly? (Answer $12548)? For all these 5 questions, answer are also listed. Kindly provide a detailed steps and formulae to derive the answer.
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