Good Time Corparation is considering investing in a new engine is expected to increase the production...

Good Time Corparation is considering investing in a new engine is expected to increase the production produced. Price of the machine to be purchased $ 1,000,000 with an economic life of 5 years. The machine is depressed by the straight line method. The machine is expected to produce 30,000 units of product every year at a price of $ 60 in the first year and due to price increases are expected to rise by 5% every year. Unit production costs are $ 30 in the first year and will increase at 5% per year. This project has an annual fixed cost of $ 225,000 investment requires a net working capital of $ 35,000. Corporate tax is 35% and the discount rate is 12%, calculated using the net present value (NPV) technique, Profitability Index (PI), Internal Return Rate (IRR) and Modified Internal Return Rate (MIRR), Is the investment in this new machine worth it? Explain your analysis.

Solutions

Expert Solution

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

A company is considering investing in a new project that will cost $6,589,490 and increase net...

A company is considering investing in a new project that will cost $6,589,490 and increase net income by 8.18%. This project will be completely funded by issuing new equity shares. Currently, the firm has 2,196,490 common shares outstanding with a market price of $32.91 per share. The current earnings per share are $1.79. What will be the earnings per share if the project is implemented? $1.73 $1.77 $1.82 $1.86 $1.91

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....

Your firm is considering investing $30 million to develop a new product. It is expected that...

Your firm is considering investing $30 million to develop a new product. It is expected that it will take 18 months to develop the product. If the firm decides to take the product to market it will cost $300 million and six months to build production and distribution facilities. The expected incremental after-tax inflows from this new product will be $10 million in year 1 of operations and is expected to grow by 3%/year in perpetuity. If the discount rate...

1)Swift Oil Company is considering investing in a new oil well. It is expected that the...

1)Swift Oil Company is considering investing in a new oil well. It is expected that the oil well will increase annual revenues by $132,000 and will increase annual expenses by $81,000 including depreciation. The oil well will cost $474,000 and will have a $11,000 salvage value at the end of its 10-year useful life. Calculate the annual rate of return. (Round answer to 2 decimal places, e.g. 12.47.) 2)Caine Bottling Corporation is considering the purchase of a new bottling machine....

Healthy Options is a Pharmaceutical Company which is considering investing in a new production line of...

Healthy Options is a Pharmaceutical Company which is considering investing in a new production line of portable electrocardiogram (ECG) machines for its clients who suffer from cardiovascular diseases. The company has to invest in equipment which costs $2,500,000 and falls within a MARCS depreciation of 5 years, and is expected to have a scrap value of $200,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase...

Campbell Company is considering investing in two new vans that are expected to generate combined cash...

Campbell Company is considering investing in two new vans that are expected to generate combined cash inflows of $30,000 per year. The vans’ combined purchase price is $94,500. The expected life and salvage value of each are four years and $20,900, respectively. Campbell has an average cost of capital of 12 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required Calculate the net present value of the investment opportunity.

Jordan Company is considering investing in two new vans that are expected to generate combined cash...

Jordan Company is considering investing in two new vans that are expected to generate combined cash inflows of $30,500 per year. The vans’ combined purchase price is $96,000. The expected life and salvage value of each are five years and $20,500, respectively. Jordan has an average cost of capital of 16 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required Calculate the net present value of the investment opportunity. (Negative amount should be...

Magenta Inc. is considering modernizing its production facility by investing in new equipment and selling the...

Magenta Inc. is considering modernizing its production facility by investing in new equipment and selling the old equipment. The following information has been collected on this investment: Old Equipment New Equipment Cost $81,120 Cost $38,800 Accumulated depreciation $40,700 Estimated useful life 8 years Remaining life 8 years Salvage value in 8 years $4,800 Current salvage value $10,180 Annual cash operating costs $29,900 Salvage value in 8 years $0 Annual cash operating costs $35,300 Depreciation is $10,140 per year for the...

24. Taylor Trucking is considering purchasing a new truck. It is expected the truck will increase...

24. Taylor Trucking is considering purchasing a new truck. It is expected the truck will increase annual revenues by $31,000 and increase annual expenses by $19,800 including depreciation. The truck will cost $110,000 and will have a $2,000 salvage value at the end of its useful life. Compute the annual rate of return. 20% 20.7% 10% 10.2% 23. Evergreen Co. is contemplating the purchase of a new machine that has expected annual net cash inflows of $25,000 over its 3...

Subjects