Pack & Carry is debating whether to invest in new equipment to manufacture a line of...

Pack & Carry is debating whether to invest in new equipment to manufacture a line of high-quality luggage. The new equipment would cost $900,000, with an estimated four-year life and no salvage value. The estimated annual operating results with the new equipment are as follows. (Use Exhibit 26-4.) Revenue from sales of new luggage $ 994,000 Expenses other than depreciation $ 675,000 Depreciation (straight-line basis) 225,000 900,000 Increase in net income from the new line $ 94,000 All revenue from the new luggage line and all expenses (except depreciation) will be received or paid in cash in the same period as recognized for accounting purposes. a. Compute the annual cash flows for the investment in the new equipment to produce the new luggage line. b. Compute the payback period for the investment in the new equipment to produce the new luggage line. (Round your answer to 1 decimal place.) c. Compute the return on average investment for the investment in the new equipment to produce the new luggage line. (Round your percentage answer to 1 decimal place (i.e., 12.34 to be entered as 12.3).) d. Compute the total present value of the expected future annual cash inflows, discounted at an annual rate of 10 percent for the investment in the new equipment to produce the new luggage line. (Round your "PV factor" to 3 decimal places and final answer to the nearest dollar amount.) e. Compute the net present value of the proposed investment discounted at 10 percent for the investment in the new equipment to produce the new luggage line. (Round your "PV factor" to 3 decimal places and final answer to the nearest dollar amount.)

Solutions

Expert Solution

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Atlantis Manufacturing Corp. is considering a new line of office furniture. New equipment required to manufacture...

Atlantis Manufacturing Corp. is considering a new line of office furniture. New equipment required to manufacture the product cost $750.000 to purchase and an additional $50,000 in shipping and installation expenses. The equipment will be housed in space currently unused by the company and will be depreciated on a MACRS four-year schedule over the project's four-year economic life, with rates of 33 percent 45 percent 15 percent and 7 percent for Years 1 through 4. The equipment's expected salvage value...

The U.S. multinational manufacturing firm, Greenwich Industries, is debating whether to invest in a 2-year project...

The U.S. multinational manufacturing firm, Greenwich Industries, is debating whether to invest in a 2-year project in Japan. The project’s expected cash flows consist of an initial investment of ¥1 million with cash inflows of ¥ 400,000 in Year 1 and ¥ 800,000 in Year 2. The risk-adjusted cost of capital for this project is 11%. The current exchange rate is 115 yen per dollar. Risk-free interest rates in the United States and Japan are: U.S. government bond rates: • 1-year...

Part A: New Equipment Rhonda is debating about buying a new ice cream machine for one...

Part A: New Equipment Rhonda is debating about buying a new ice cream machine for one of her stores. The current machine is valued at $10,000 this year and will generate $2,500 of profit for the store. The value of the machine at the end of the year will be $8,250. Her other option is to purchase a new piece of equipment for $15,000. The new equipment will generate $4,000 in profit and will be valued at $12,500. Calculate the...

Mountain Home Systems, Inc. is debating whether to expand its sales in a new market. Sales...

Mountain Home Systems, Inc. is debating whether to expand its sales in a new market. Sales are currently $5,000,000 annually, but MHS Inc. expects sales to increase to $7,000,000 annually if it enters this market. MHS Inc. also knows that 15% of its sales are ultimately be uncollectible. In addition, collection costs will be 2% of sales and the firm's production costs are 72% of sales. Selling expenses are 8% of sales and Mountain Home has an opportunity cost of...

At the beginning of 2019, the Healthy Life Food Company purchased equipment for $42 million to be used in the manufacture of a new line of gourmet frozen foods.

At the beginning of 2019, the Healthy Life Food Company purchased equipment for $42 million to be used in the manufacture of a new line of gourmet frozen foods. The equipment was estimated to have a 10-year service life and no residual value. The straight-line depreciation method was used to measure depreciation for 2019 and 2020. Late in 2021, it became apparent that sales of the new frozen food line were significantly below expectations. The company decided to continue production...

A city is deciding whether it makes sense to invest in a light rail line. Engineers...

A city is deciding whether it makes sense to invest in a light rail line. Engineers have projected that if the rail line were to be built, once completed it would reduce travel time for 2,000 commuters by 60 minutes per day (for each workday). The line will take four years to build. The costs of construction are projected to equal $25,000,000 per year, and the costs of operating the line are assumed to equal $2,000,000 per year. Assume that...

R&D Computer Inc. is debating on whether to develop a new anti-virus software. Development will take...

R&D Computer Inc. is debating on whether to develop a new anti-virus software. Development will take three years and the cost is $4000 per year. Once in production, the software will make $3000 per year for the next s seven years. The cash inflows begin at the end of year 4. Assuming the cost of capital is 10% a. Calculate the NPV, should the company make this investment? b. Calculate the IRR and use it to determine the maximum deviation...

Your company is deciding whether to invest in a new machine.The new machine will increase...

Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $306,000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $1,710,000. The cost of the machine will decline by $110,000 per year until it reaches $1,160,000, where it will remain.If your required...

Maroon Limited is deciding whether to invest in a new machine. The new machine will increase...

Maroon Limited is deciding whether to invest in a new machine. The new machine will increase cash flow by $250,000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $1,700,000. The cost of the machine will decline by $165,000 per year until it reaches $1,040,000, where it will remain. If your...

Your company is deciding whether to invest in a new machine. The new machine will increase...

Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $316,000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $1,690,000. The cost of the machine will decline by $106,000 per year until it reaches $1,160,000, where it will remain. If your...

Subjects