Question

In: Finance

(ii) Sonstraal Butchery intends to modernise its butchery machinery and equipment. The company anticipates that the...

(ii) Sonstraal Butchery intends to modernise its butchery machinery and equipment. The company anticipates that the modernisation will increase cash flows
by R200,000 four years from today, R350,000 five years from today, R360,000 six years from today, and R400,000 seven years from today.
Estimate the total future value of of these cash flows at the end of year seven using a 17% interest rate.

Solutions

Expert Solution

Calculation of  future value of of given cash flows at the end of year seven using a 17% interest rate:

Year Increase in Cash Flows Year left till 7 years Future Value Calculation Future Value
4                              2,00,000                                             3 200,000*1.17^3            3,20,322.60
5                              3,50,000                                             2 350,000*1.17^2            4,79,115.00
6                              3,60,000                                             1 360,000*1.17^1            4,21,200.00
7                              4,00,000                                           -   400,000*1.17^0            4,00,000.00
Future Value of the above cash flows at the end of year seven using 17% interest rate          16,20,637.60

Related Solutions

Smirk Co. purchased machinery on July 1, 2016 for $68,000, and intends to use the machinery...
Smirk Co. purchased machinery on July 1, 2016 for $68,000, and intends to use the machinery for 10 years. After 10 years, Smirk estimates the machinery will sell for $3,000. Smirk will use the revaluation model to account for machinery. The fair value of machinery on December 31, 2019 (the first revaluation date) is $50,000. Required (a)    If Smirk uses the double diminishing balance method to calculate depreciation, calculate depreciation expense for 2016 (b)   Assuming Smirk uses the straight-line method for depreciation,...
The RW Company is proposing to replace its old welt-making machinery with more modern equipment. The...
The RW Company is proposing to replace its old welt-making machinery with more modern equipment. The new equipment costs $9 million (the existing equipment has zero salvage value). The attraction of the new machinery is that it is expected to cut manufacturing costs from their current level of $8 a welt to $4. However, as the following table shows, there is some uncertainty both about future sales and about the performance of the new machinery: Pessimistic Expected Optimistic Sales, millions...
The Rustic Welt Company is proposing to replace its old welt-making machinery with more modern equipment....
The Rustic Welt Company is proposing to replace its old welt-making machinery with more modern equipment. The new equipment costs $10.8 million (the existing equipment has zero salvage value). The attraction of the new machinery is that it is expected to cut manufacturing costs from their current level of $9.80 a welt to $5.80. However, as the following table shows, there is some uncertainty about both the future sales and the performance of the new machinery: Pessimistic Expected Optimistic Sales...
The company is considering the purchase of machinery and equipment to set up a line to...
The company is considering the purchase of machinery and equipment to set up a line to produce a combination washer-dryer. They have given you the following information to analyze the project on a 5-year timeline: Initial cash outlay is $150,000, no residual value. Sales price is expected to be $2,250 per unit, with $595 per unit in labor expense and $795 per unit in materials. Direct fixed costs are estimated to run $20,750 per month. Cost of capital is 8%,...
the company is considering the purchase of machinery and equipment to set up a line to...
the company is considering the purchase of machinery and equipment to set up a line to produce a combination washer-dryer. They have given you the following information to analyze the project on a 5-year timeline: Initial cash outlay is $150,000, no residual value. Sales price is expected to be $2,250 per unit, with $595 per unit in labor expense and $795 per unit in materials. Direct fixed costs are estimated to run $20,750 per month. Cost of capital is 8%,...
the company is considering the purchase of machinery and equipment to set up a line to...
the company is considering the purchase of machinery and equipment to set up a line to produce a combination washer-dryer. They have given you the following information to analyze the project on a 5-year timeline: Initial cash outlay is $150,000, no residual value. Sales price is expected to be $2,250 per unit, with $595 per unit in labor expense and $795 per unit in materials. Direct fixed costs are estimated to run $20,750 per month. Cost of capital is 8%,...
) Large Mart is currently using its own engineers and equipment to build the machinery for...
) Large Mart is currently using its own engineers and equipment to build the machinery for a new factory in Armidale in which tablet computers will be produced. Last week, the director of Large Mart’s engineering department (who usually works in Sydney) travelled (by car) from Sydney to Brisbane to attend a conference. On his way to the conference he stopped in Armidale to visit the team that is building the machinery for the new factory. During his visit to...
Later, the company is considering the purchase of machinery and equipment to set up a line...
Later, the company is considering the purchase of machinery and equipment to set up a line to produce a combination washer-dryer. They have given you the following information to analyze the project on a 5-year timeline: Initial cash outlay is $150,000, no residual value. Sales price is expected to be $2,250 per unit, with $595 per unit in labor expense and $795 per unit in materials. Direct fixed costs are estimated to run $20,750 per month. Cost of capital is...
Required: A manufacturing company holds large amounts of factory machinery on its balance sheet. The machinery...
Required: A manufacturing company holds large amounts of factory machinery on its balance sheet. The machinery is custom built using specifications that make it unsuitable for use in any other location. For this reason it is unlikely that there could exist a resale market for this machinery.   Discuss:   two advantages of using historical cost to measure this machinery.     (2.5 marks) two advantages of using the revaluation model to measure this machinery.      (2.5 marks)
Your firm intends to purchase equipment today for $1 million (year 0). The equipment will be...
Your firm intends to purchase equipment today for $1 million (year 0). The equipment will be straight-line depreciated to a book value of $0 over 10 years (years 1-10). The project will last five years, generating revenues of $600,000 per year (years 1-5). Variable costs will equal a constant 30% of revenues. Fixed costs will equal $100,000 per year (years 1-5). Working capital equals 20% of next year's revenues. The equipment will be sold for $600,000 in year 6. The...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT