Question

In: Economics

Dunn Manufacturing is considering the following two alternatives. The cost information for the two proposals for...

Dunn Manufacturing is considering the following two alternatives. The cost information for the two proposals for replacing an equipment are provided are in table below.

Machine X

Machine Y

Initial cost

$120,000

$96,000

Benefits/year

$20,000 for the first 10 years

and $9,000 for the next 10

years

$12,000 per year for 20 years.

Life

20 years

Salvage value

$40,000

$20,000

MARR

8%

Reference: Case Study 5

The NPW of machine Y is ________________.

	A.	$29,508
	B.	$32,103
	C.	$26,106
	D.	$42,196

Expert Solution

Answer is C. $ 26,106

The explanation is as follows:

Present value of benefits for 20 years ($12,000 *Annuity factor @8% i.e. 9.818): $ 117,816

Add: Present value off salvage value ($20,000*Present value factor for 20th year i.e. 0.2145): $4,290

Less: Initial Investment: $96,000

Net present worth of Machine Y: $26,106

Rahul Sunny answered 1 year ago

A manufacturing company is considering two mutually exclusive alternatives. Alternatives &nb

A manufacturing company is considering two mutually exclusive alternatives. Alternatives Alt. A Alt. B Initial cost $ 42,500 $ 70,000 Annual costs O & M $ 6,000 $ 4,000 Annual savings $ 18,500 $ 20,000 Residual value $ 12,000 $ 25,000 Shelf life 3 years 6 years What would be the "advantage" in annual terms of Alternative B versus Alternative A at 15% interest? Select one: a. $ 3020 b. $ 3500 c. $ 7436 d. Alternative B does...

Schultz Manufacturing is considering two alternative investment proposals with the following details: Proposal A Proposal B...

Schultz Manufacturing is considering two alternative investment proposals with the following details: Proposal A Proposal B Investment, today $550,000 $275,000 Useful life 5 years 4 years Estimated annual net cash inflows $150,000 $90,000 Residual value $50,000 $0 Depreciation method Straight-line Straight-line Discount rate 10% 9% You have been hired as a capital budgeting expert. You are to recommend to the senior management of Schultz the best investment option. What proposal do you recommend? You must support your answer. Please show...

Jameson Manufacturing is considering two alternative investment proposals with the following details: Proposal A Proposal B...

Jameson Manufacturing is considering two alternative investment proposals with the following details: Proposal A Proposal B Investment, today $550,000 $275,000 Useful life 5 years 4 years Estimated annual net cash inflows $150,000 $90,000 Residual value $50,000 $0 Depreciation method Straight-line Straight-line Discount rate 10% 9% You have been hired as a capital budgeting expert. You are to recommend to the senior management of Jameson the best investment option. What proposal do you recommend? You must support your answer. Jameson has...

Contact Manufacturing, Inc is considering two alternative investment proposals. The first proposal Calls for a major...

Contact Manufacturing, Inc is considering two alternative investment proposals. The first proposal Calls for a major renovation of the company's manufacturing facility. The second involves replacing just a few obsolete pieces of equipment in the facility. The company will choose one project or the other this year, but it will not do both. The cash flows associated with each project appear below and the firm discounts project cash flows at 15%. Year Renovate Replace 0 -9,000,000 -2,400,000 1 3,000,000 2,000,000...

Contract Manufacturing, Inc., is considering two alternative investment proposals. The first proposal calls for a major...

Contract Manufacturing, Inc., is considering two alternative investment proposals. The first proposal calls for a major renovation of the company’s manufacturing facility. The second involves replacing just a few obsolete pieces of equipment in the facility. The company will choose one project or the other but not both. The cash flows associated with each project appear below and the firm discounts project cash flow at 15%: Year: 0 ; 1 ; 2 ; 3 ; 4 ; 5 Renovate :...

The city government is considering two tax proposals:

8. Problems and Applications Q8 The city government is considering two tax proposals: • A lump-sum tax of $300 on each producer of hamburgers. • A tax of $1 per burger, paid by producers of hamburgers. Which of the following statements is true as a result of the lump-sum tax? Check all that apply. Marginal cost will increase. Average variable cost will remain unchanged. Average fixed cost will increase. Average total cost will increase. Which of the following statements is true as a result of the per-burger tax? Check all that...

A firm is considering the following two competing proposals for the purchase of new equipment. Assume...

A firm is considering the following two competing proposals for the purchase of new equipment. Assume straight-line depreciation and a tax rate of 20 percent. (a) Calculate the net present value of each alternative at a discount rate of 10 percent. (b) If 10 percent is the required rate of return, which alternative should be selected? Why? Please show all steps. Don't round off until you get to the end. A B Net Cash Outlay 9000 7500 Salvage Value 0...

8-4: A firm is considering two alternatives that have no salvage value. A Initial Cost $10,700...

8-4: A firm is considering two alternatives that have no salvage value. A Initial Cost $10,700 Uniform Annual Benefits 2,100 Useful life, in years 8 B Initial Cost $5,500 Uniform Annual Benefits 1,800 Useful life, in years 4 At the end of 4 years, another B may be purchased with the same cost, benefits, and so forth. What is the discounted payback period of A?

A firm is considering two mutually exclusive investment alternatives, both of which cost $5,000. The firm's...

A firm is considering two mutually exclusive investment alternatives, both of which cost $5,000. The firm's expected rate of return is 12 percent. The cash flows associated with each investment are: Year Investment A Investment B 1 $ 2000 $ 1000 2 $1500 $ 1500 3 $1500 $ 2000 4 $1000 $3000 For each alternative calculate the payback period, the net present value, and the profitably index. Which alternative (if any) should be selected?

Two-Stage ABC for Manufacturing with Variances Montreat Manufacturing has developed the following activity cost pool information...

Two-Stage ABC for Manufacturing with Variances Montreat Manufacturing has developed the following activity cost pool information for its 2016 manufacturing activities: Budgeted Activity Cost Activity Cost Driver at Practical Capacity Purchasing and materials handling $2,700,000 900,000 kilograms Setup 2,800,000 1,120 setups Machine operations 3,816,000 12,000 hours First unit inspection 200,000 1,000 batches Packaging 1,000,000 312,500 units Actual 2016 production information is as follows: Standard Product A Standard Product B Specialty Products Units 150,000 100,000 50,000 Batches 100 80 600 Setups*...