You are considering investing $800,000 in new equipment for your farming operation. This equipment has an...

You are considering investing $800,000 in new equipment for your farming operation. This equipment has an expected life of 15 years, and will add $80,000 in after-tax cash flow to your operation each year. 1. What is the payback period for this equipment? 2. What is the total benefit (NOT NPV, just total benefit like we did last week) from this investment? 3. What is the average rate of return for this investment? 4. Assume a 4% discount rate and calculate the net present value of this investment. 5. Assume a 6% discount rate and calculate the net present value of this investment.

Solutions

Expert Solution

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Your company is considering investing in new material handling equipment for your warehouse. The new equipment...

Your company is considering investing in new material handling equipment for your warehouse. The new equipment will allow for savings in fuel and maintenance costs each year over 6 years. The first year savings is expected to be $3000 and that savings will decrease by $400 each subsequent year (i.e. $2600 savings year 2, $2200 savings year 3, and so on). The new equipment would cost $20,000 today, and at the end of 6 years it would have zero value....

You are considering investing RM70000 in new equipment. You estimate that the net cash flows will...

You are considering investing RM70000 in new equipment. You estimate that the net cash flows will be RM14000 during the first year, but will increase by RM2500 per year the next year and each year thereafter. The equipment is estimated to have a 11-year service life and a net salvage value of RM4600 at that time. Assume MARR of 8%. Answers a.Calculate the annual capital cost CR (ownership cost) for the equipment. b.Determine the equivalent annual savings. c.Is this a...

You are considering investing RM70000 in new equipment. You estimate that the net cash flows will...

You are considering investing RM70000 in new equipment. You estimate that the net cash flows will be RM14000 during the first year, but will increase by RM2500 per year the next year and each year thereafter. The equipment is estimated to have a 11-year service life and a net salvage value of RM4600 at that time. Assume MARR of 8%. a.Calculate the annual capital cost CR (ownership cost) for the equipment. b.Determine the equivalent annual savings. c.Is this a wise...

Tulsa Company is considering investing in new bottling equipment and has two options: Option A has...

Tulsa Company is considering investing in new bottling equipment and has two options: Option A has a lower initial cost but would require a significant expenditure to rebuild the machine after four years; Option B has higher maintenance costs, but also has a higher salvage value at the end of its useful life. Tulsa’s cost of capital is 11 percent. The following estimates of the cash flows were developed by Tulsa’s controller: Option A Option B Initial investment $ 320,000...

You are considering investing in a new project, Project B. Your firm has already invested in...

You are considering investing in a new project, Project B. Your firm has already invested in one project, Project A. If the cash flows to Project A will increase when you invest in Project B, should you include the entire cash flows to Project A in your valuation of Project B, include the new cash flows to Project A in the valuation of Project B, or exclude any cash flows to Project A in the valuation of Project B? Explain...

1. Zeebo company is considering investing $425,000 for new equipment. The new equipment is much more...

1. Zeebo company is considering investing $425,000 for new equipment. The new equipment is much more efficient than the current machine Zeebo is using. The machine will save $105,000/year in labor and other costs but will require annual maintenance costs of $13,000/year. The machine is expected to last 6 years and will have no salvage value. Estimate the project's Internal Rate of Return and Payback Period.

1. You are considering investing in a new project, Project B. Your firm has already invested...

1. You are considering investing in a new project, Project B. Your firm has already invested in one project, Project A. If the cash flows to Project A will increase when you invest in Project B, should you include the entire cash flows to Project A in your valuation of Project B, include the new cash flows to Project A in the valuation of Project B, or exclude any cash flows to Project A in the valuation of Project B?...

considering investing in a new piece of equipment that is expected to generate $30,000 of revenue...

considering investing in a new piece of equipment that is expected to generate $30,000 of revenue the first year, increasing 15% per year for the 9 year useful life. The salvage value is expected to be 20% of the initial investment. Using a MARR of 10% and an equivalent worth method, determine the maximum your company should pay for the equipment in order for this to be a satisfactory investment.

1. Mighty Manufacturing is considering investing $600,000 in a new production line. The new equipment is...

1. Mighty Manufacturing is considering investing $600,000 in a new production line. The new equipment is expected to generate a savings of $200,000 per year for each of the next five years. Mighty’s cost of capital is 5 percent. What is the net present value of the investment in the new production line? Disregard the effect of depreciation and taxes. A. $565,880. B. $456,980. C. $265,880. D. $650,490. 2. Parts Equipment Company is evaluating a plan to refit its machinery....

Thomson Media is considering investing in some new equipment whose data are shown below. The equipment...

Thomson Media is considering investing in some new equipment whose data are shown below. The equipment has a 3-year class life and will be depreciated by the MACRS depreciation system, and it will have a positive pre-tax salvage value at the end of Year 3, when the project will be closed down. Also, some new working capital will be required, but it will be recovered at the end of the project's life. Revenues and cash operating costs are expected to...

Subjects