Question
In: Finance
Read Book Company is the manufacturer of exercise machines and is considering producing a new line...
Read Book Company is the manufacturer of exercise machines and is considering producing a new line of equipment in an effort to increase its market share. The new production line will cost $850,000 for manufacturing the parts and an additional $280,000 is needed for installation. The equipment falls into the MACRS 3‐yr class, and would be sold after four years for $350,000. The equipment line will generate additional annual revenues of $600,000, and will have additional annual operating expenses of $300,000. An inventory investment of $75,000 is required during the life of the project. Read Book Company is in the 25 percent tax bracket, and its existing cost of capital is 8 percent.
a. Calculate the initial outlay of the project
b. Calculate the annual after‐tax operating cash flow for Years 1 ‐4.
c. Determine the terminal year non‐operating cash flow in year 4:
d. What is the equipment NPV?
e. What is the estimated Internal Rate of Return (IRR) of the equipment?
f. Should the equipment be accepted based on the IRR criterion?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Read Book Company is the manufacturer of exercise machines and is considering producing a new line...
Read Book Company is the manufacturer
of exercise machines and is considering producing a new line of
equipment in an effort to increase its market
share. The new production line will cost $850,000
for manufacturing the parts and an additional $280,000 is needed
for installation. The equipment falls into the MACRS 3‐yr class,
and would be sold after four years for $350,000. The equipment line
will generate additional annual revenues of $600,000, and will
have
additional annual operating expenses
of...
Read Book Company is the manufacturer of exercise machines and is considering producing a new line...
Read Book Company is the manufacturer of exercise machines and
is considering producing a new line of equipment in an effort to
increase its market share. The new production line will cost
$850,000 for manufacturing the parts and an additional $280,000 is
needed for installation.
The equipment falls into the MACRS 3‐yr class, and would be sold
after four years for $350,000. The equipment line will generate
additional annual revenues of $600,000, and will have Additional
annual operating expenses of...
Read Book Company is the manufacturer of of exercise machines and is considering producing a new...
Read Book Company is the manufacturer of of exercise machines
and is considering producing a new line of equipment in an effort
to increase its market share. The new production line will cost
$850,000 for manufacturing the parts and an additional $280,000is
needed for installation. The equipment falls into the MACRS 3-yr
class, and would be sold after four years for $350,000. The
equipment line will generate additional annual revenues of
$600,000, and will have additional annual operating expenses of...
Read Book Company is the manufacturer of of exercise machines and is considering producing a new...
Read Book Company is the manufacturer of of exercise machines
and is considering producing a new line of equipment in an effort
to increase its market share. The new production line will cost
$850,000 for manufacturing the parts and an additional $280,000is
needed for installation. The equipment falls into the MACRS 3-yr
class, and would be sold after four years for $350,000. The
equipment line will generate additional annual revenues of
$600,000, and will have additional annual operating expenses of...
ABC company is considering two different injection molding machines for the new production line. They have...
ABC company is considering two different injection molding
machines for the new production line. They have to choose one of
these two models. The cost data for the two alternatives are given
in the table below. MARR is 10%. X21-T Model Z24-T
Initial cost $440K $580K
Annual operating cost 75K 35K
Benefits /Year 150K 130K
Salvage value 35K 30K
Life 12 Years for both
a) Calculate the rate of return for each alternative. What is
your conclusion for part a?...
• A MAJOR POTENTIOMETER MANUFACTURER IS CONSIDERING TWO ALTERNATIVES FOR NEW PRODUCTION MACHINES WITH CAPACITY TO...
• A MAJOR POTENTIOMETER MANUFACTURER IS CONSIDERING TWO
ALTERNATIVES FOR NEW PRODUCTION MACHINES WITH CAPACITY TO PRODUCE
20 000 UNITS PER DAY. ONE ALTERNATIVE IS FOR A HIGH-CAPACITY
AUTOMATED PRODUCTION MACHINE CAPABLE OF PRODUCING 20 000 UNITS PER
DAY WHEN OPERATED FOR THREE SHIFTS PER DAY. A QUARTER-TIME EMPLOYEE
WOULD BE ASSIGNED TO MONITOR THE MACHINE (EMPLOYEE WOULD MONITOR
OTHER MACHINES AT THE SAME TIME). WITH THE THREE-SHIFT SCHEDULE
THIS WOULD BE EQUIVALENT TO A THREE-QUARTER-TIME EMPLOYEE.
• A SECOND...
Gilmore Golf, Inc is considering producing and selling a new line of golf clubs. The clubs...
Gilmore Golf, Inc is considering producing and selling a new
line of golf clubs. The clubs will sell for $690 per set and have a
variable cost of $255 per set. The company has spent $250,000 for a
marketing study that determined the company will sell 5,000 sets
per year for 20 years. The marketing study also determined that the
company will lose sales of 2,000 sets per year of its high-priced
clubs, which currently sell for $1000 per set...
Gilmore Golf, Inc is considering producing and selling a new line of golf clubs. The clubs...
Gilmore Golf, Inc is considering producing and selling a new
line of golf clubs. The clubs will sell for $690 per set and have a
variable cost of $255 per set. The company has spent $250,000 for a
marketing study that determined the company will sell 5,000 sets
per year for 20 years. The marketing study also determined that the
company will lose sales of 2,000 sets per year of its high-priced
clubs, which currently sell for $1000 per set...
Go Video, a manufacturer of video recorders, is considering a proposal to enter a new line...
Go Video, a manufacturer of video recorders, is considering a
proposal to enter a new line of business. In reviewing the
proposal, the company’s CFO is considering the following facts:
The new business will require the company to purchase additional
fixed assets that will cost $800,000 at t = 0. For tax and
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Go Video, a manufacturer of video recorders, is considering a proposal to enter a new line...
Go Video, a manufacturer of video recorders, is considering a
proposal to enter a new line of business. In reviewing the
proposal, the company’s CFO is considering the following
facts:
The new business will require the company to purchase additional
fixed assets that will cost $800,000 at t = 0. For tax and
accounting purposes, these costs will be depreciated on a
straight-line basis over four years. (Annual depreciation will be
$200,000 per year at t = 1, 2, 3...
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