Question

In: Finance

Debby’s Dance Studios is considering the purchase of new sound equipment that will enhance the popularity...

Debby’s Dance Studios is considering the purchase of new sound equipment that will enhance the popularity of its aerobics dancing. The equipment will cost $20,900. Debby is not sure how many members the new equipment will attract, but she estimates that her increased annual cash flows for each of the next five years will have the following probability distribution. Debby’s cost of capital is 15 percent. Probability Cash flow 0.1 $4,570 0.3 5,550 0.4 7,400 0.2 9,930 a. What is the expected cash flow? Expected cash flow $ b. What is the expected NPV? (Round "PV Factor" to 3 decimal places. Do not round intermediate calculations. Round the final answer to the nearest whole dollar.) NPV $ c. Should Debby buy the new equipment? Yes No

Solutions

Expert Solution


Related Solutions

Herrera Music is considering the sale of a new sound board used in recording studios.  The new...
Herrera Music is considering the sale of a new sound board used in recording studios.  The new board would sell for $25,500 and the company expects to sell 1,400 per year.  The company currently sells 1,900 units of its existing model per year.  If the new model is introduced, sales of the existing model will fall to 1,720 units per year.  The old board retails for $21,400.  Variable costs are 55 percent of sales, depreciation on the equipment to produce the new board will be...
Cusic Music Company is considering the sale of a new sound board used in recording studios....
Cusic Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $24,300, and the company expects to sell 1,600 per year. The company currently sells 1,950 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,620 units per year. The old board retails for $22,700. Variable costs are 55 percent of sales, depreciation on the equipment to...
Cusic Music Company is considering the sale of a new sound board used in recording studios....
Cusic Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $23,700, and the company expects to sell 1,540 per year. The company currently sells 1,890 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,560 units per year. The old board retails for $22,100. Variable costs are 55 percent of sales, depreciation on the equipment to...
A company is considering purchasing new equipment. The purchase of the equipment is       expected to...
A company is considering purchasing new equipment. The purchase of the equipment is       expected to generate after tax savings of $12,600 each year for 8 years. The company can       borrow money at 6%. Assume annual compounding.         Determine the present value of the future cash inflows. Hint: the $12,600 are your annuity payments
FITCO is considering the purchase of new equipment. The equipment costs $337000, and an additional $114000...
FITCO is considering the purchase of new equipment. The equipment costs $337000, and an additional $114000 is needed to install it. The equipment will be depreciated straight-line to zero over a 5-year life. The equipment will generate additional annual revenues of $260000, and it will have annual cash operating expenses of $85000. The equipment will be sold for $85000 after 5 years. An inventory investment of $71000 is required during the life of the investment. FITCO is in the 40...
FITCO is considering the purchase of new equipment. The equipment costs $354000, and an additional $104000...
FITCO is considering the purchase of new equipment. The equipment costs $354000, and an additional $104000 is needed to install it. The equipment will be depreciated straight-line to zero over a 5-year life. The equipment will generate additional annual revenues of $266000, and it will have annual cash operating expenses of $82000. The equipment will be sold for $84000 after 5 years. An inventory investment of $71000 is required during the life of the investment. FITCO is in the 40...
Nona Sports is considering the purchase of new production equipment. The equipment will cost $135,000. It...
Nona Sports is considering the purchase of new production equipment. The equipment will cost $135,000. It has an expected useful of life of 5 years, but will require refurbishing at the end of 3 years. The refurbishment will cost $5,000. The estimated salvage value at the end of the useful life is $10,000. The increased annual net income from the equipment is projected to be $40,000. Using a hurdle rate of 12%, calculate the NPV for the equipment. *If you...
Med Inc. is considering the purchase of a new equipment to produce face marks. The equipment...
Med Inc. is considering the purchase of a new equipment to produce face marks. The equipment would be depreciated by the straight-line method over its 4-year life, and would have a $10,000 salvage value. Accounts payable will rise by $5,000 at time 0 but will be recovered at the end of the project’s life. Revenues and annual operating costs are expected to be constant over the project's 4-year life. The other information is shown below. Risk-adjusted WACC 12.0% Equipment purchase...
A company is considering the purchase of new equipment for its production area. The equipment has...
A company is considering the purchase of new equipment for its production area. The equipment has an initial cost of $ 3,000 with operation and maintenance costs, as well as the market liquidation value as shown in the following table: Year Costs of operation Rescue value 1 $1,000 $1,500 2 $1,700 $1,000 3 $2,400 $500 4 $3,100 $0 Determine the Optimal Economic Life of this investment, if the MARR of the company is 12%
BITFIT is considering the purchase of new equipment. The equipment costs $360,000, and an additional $120,000...
BITFIT is considering the purchase of new equipment. The equipment costs $360,000, and an additional $120,000 is needed to install it. The equipment will be depreciated straight-line to zero over a 6-year life. The equipment will generate additional annual revenues of $265,000, and it will have annual cash operating expenses of $80,000. The equipment will be sold for $75,000 after 6 years. An inventory investment of $73,000 is required during the life of the investment and will be recovered by...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT