Question

In: Finance

Your company plans to purchase some new equipment with anestimated cost of $2.00 million two...

Your company plans to purchase some new equipment with an estimated cost of $2.00 million two years from now. Your company earns 5.1% compounded monthly on its savings. How much does the company need to save at the end of each month if it wants to pay cash for this purchase?

Solutions

Expert Solution

Information provided:

Present value= $2,000,000

Time= 2 years*12 = 24 months

Interest rate= 5.1%/12 = 0.4250% per month

The monthly saving is calculated by entering the below in a financial calculator:

PV= -2,000,000

N= 24

I/Y= 0.4250

Press the CPT key and PMT to compute the amount of monthly saving.

The value obtained is 87,832.38.

Therefore, the company needs to save $87,832.38 at the end of 2 years to purchase the new equipment.


Related Solutions

1. Your company is analyzing the possible purchase of new equipment at a cost of $150,000....
1. Your company is analyzing the possible purchase of new equipment at a cost of $150,000. Assume straight-line depreciation and a 3-year depreciable life. It is estimated the equipment would save:$120,000 in Year 1$120,000 in Year 2$120,000 in Year 3$120,000 in Year 4Project operating costs are expected to be $40,000 each year. The firm’s income tax rate is 21 percent, and its required rate of return or cost of capital is 12 percent. Calculate the Net Present Value (NPV) of...
Clover Company plans to invest $7.85 million in a new piece of equipment that will be...
Clover Company plans to invest $7.85 million in a new piece of equipment that will be used on a major product line. The equipment is expected to last 10 years with a salvage value of zero. The company anticipates the new equipment will be able to produce 200,000 additional units to meet the increasing demand for the product. The product sells for $18 per unit, variable costs are $7.20 per unit and annual fixed operating costs (excluding depreciation) will be...
A company plans to purchase a new machine. There are two choices. The following are the...
A company plans to purchase a new machine. There are two choices. The following are the cash flows from two machines:        Machine A:    The machine’s initial purchase price is $99,718, and it has a singlemaintenance fee of $6,000 at the end of year 4. The machine would last for 7 years. Assume that the discount rate is 8% for this machine.      Machine B:    The machine’s initial purchase price is $10,000, and it has annualmaintenance cost of $10,000 at the end of each...
A project requires to purchase an equipment with a cost of $1.55 million. The equipment will...
A project requires to purchase an equipment with a cost of $1.55 million. The equipment will be depreciated straight-line to a zero book value over the 9-year life of the project. At the end of the project it will be sold for a market value of $240,000. The project will not change sales but will reduce operating costs by $399,000 per year. The project also requires an initial investment of $52,000 in net working capital, which will be recouped when...
Your company plans to raise $100 million to finance its new two-year project by issuing new...
Your company plans to raise $100 million to finance its new two-year project by issuing new two-year bonds (with annual coupons and annual compounding). Your company and its new project are currently considered risk-free. Unfortunately, covenants in the preexisting debt issued during harder times impose restrictions on the amount of new debt. Specifically, if the face value of the new bond issue is below $100 million, your company can promise to pay an annual coupon of up to 5%. However,...
Diamond Autobody purchased some new equipment. The new equipment cost $90,000. The company estimates the equipment...
Diamond Autobody purchased some new equipment. The new equipment cost $90,000. The company estimates the equipment will have a residual value of $10,000. Diamond also estimates it will use the equipment for eight years or about 5,000 total hours. Required: Prepare a depreciation schedule for eight years using the following methods: 1. Straight-line. 2. Double-declining-balance. 3. Activity-based. Actual use per year was as follows: Year Hours Used 1 850 2 750 3 800 4 730 5 700 6 625 7...
LuLuLime (LLL) is a company that sells modern equipment. To purchase a new equipment for your...
LuLuLime (LLL) is a company that sells modern equipment. To purchase a new equipment for your company from LLL, you as a financial manager have narrowed down two equipment models which meet your performance requirements equally. However, the schedule of payments of two models are different. Model A requires yearly payment of $15,000 for 5 years with the first payment to be made today. Model B requires yearly payment of $15,500 for 5 years with the first payment to be...
The Severn Company plans to raise a net amount of $270 million to finance new equipment...
The Severn Company plans to raise a net amount of $270 million to finance new equipment in early 2017. Two alternatives are being considered: Common stock may be sold to net $60 per share, or bonds yielding 10% may be issued. The balance sheet and income statement of the Severn Company prior to financing are as follows: The Severn Company: Balance Sheet as of December 31, 2016 (Millions of Dollars) Current assets $ 900.00 Notes payable $ 255.00 Net fixed...
The Severn Company plans to raise a net amount of $270 million to finance new equipment...
The Severn Company plans to raise a net amount of $270 million to finance new equipment in early 2017. Two alternatives are being considered: Common stock may be sold to net $60 per share, or bonds yielding 10% may be issued. The balance sheet and income statement of the Severn Company prior to financing are as follows: The Severn Company: Balance Sheet as of December 31, 2016 (Millions of Dollars) Current assets $ 900.00 Notes payable $ 255.00 Net fixed...
Company A is assessing the purchase of a new ship. The ship will cost $497 million...
Company A is assessing the purchase of a new ship. The ship will cost $497 million and will operate for 20 years. The company estimates annual cash flows from operating the ship to be $71.1 million, and its cost of capital is 12.5%. Calculate the NPV and IRR of the purchase. Prepare an NPV profile of the purchase and highlight the IRR. Should the company proceed with the purchase? How far off could the firm’s cost of capital estimate be...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT