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In: Accounting
Quip Corporation wants to purchase a new machine for $290,000. Management predicts that the machine will...
Quip Corporation wants to purchase a new machine for $290,000. Management predicts that the machine will produce sales of $198,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $88,000 per year. The firm uses straight-line depreciation with an assumed residual (salvage) value of $50,000. Quip's combined income tax rate, t, is 30%.
Management requires a minimum after-tax rate of return of 10% on all investments. What is the approximate internal rate of return (IRR) of the proposed investment? (Note: To answer this question, students must have access to Table 2 from Appendix C, Chapter 12.) Assume that all cash flows occur at year-end.
Solutions
ekkarill92 answered 2 years agoRelated Solutions
Pique Corporation wants to purchase a new machine for $270,000. Management predicts that the machine can...
Pique Corporation wants to purchase a new machine for $270,000.
Management predicts that the machine can produce sales of $160,000
each year for the next 4 years. Expenses are expected to include
direct materials, direct labor, and factory overhead (excluding
depreciation) totaling $69,000 per year. The firm uses
straight-line depreciation with no residual value for all
depreciable assets. Pique's combined income tax rate is 40.00%.
Management requires a minimum after-tax rate of return of 10.00% on
all investments.
What is...
37.) Marc Corporation wants to purchase a new machine for $400,000. Management predicts that the machine...
37.) Marc Corporation wants to purchase a new machine for
$400,000. Management predicts that the machine will produce sales
of $281,000 each year for the next 5 years. Expenses are expected
to include direct materials, direct labor, and factory overhead
(excluding depreciation) totaling $81,000 per year. The company
uses MACRS for depreciation. The machine is considered to be a
3-year property and is not expected to have any significant
residual value at the end of its useful life. Marc's combined...
The management of ABC Corporation is considering the purchase of a new machine costing $430,000. The...
The management of ABC Corporation is considering the purchase of
a new machine costing $430,000. The company's desired rate of
return is 10%. The present value factors for $1 at compound
interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751,
0.683, and 0.621, respectively. In addition to the foregoing
information, use the following data in determining the
acceptability in this situation by using the NPV methodology
calculations
Year
Income from
Operations
Net Cash
Flow
1
$100,000
$180,000...
The Management of Arnold Corporation is considering the purchase of a new machine costing $400,000. The...
The Management of Arnold Corporation is considering the purchase
of a new machine costing $400,000. The residual value of the
machine is estimated to be $0. The company’s desired rate of return
is 8%. The estimated income and net cash flows associated with the
investment are as follows:
Year
Operating Income
Net Cash Flow
1
$100,000
$180,000
2
40,000
120,000
3
20,000
100,000
4
10,000
90,000
5
10,000
90,000
The payback period for this...
The management of Villa Corporation is considering the purchase of a new machine costing $300,000. The...
The management of Villa Corporation is considering the purchase
of a new machine costing $300,000. The residual value for the
machine is estimated to be $0. The company’s desired rate of return
is 8%. Estimated income and cash flow date for the project are as
follows:
Year
Operating Income
Net Cash Flow
1
$60,000
$80,000
2
$60,000
$80,000
3
$60,000
$80,000
4
$60,000
$80,000
5
$60,000
$80,000
The present value index (rounded to two decimal places) for this
investment is:...
Sam’s Shingle Corporation is considering the purchase of a new automated shingle-cutting machine. The new machine...
Sam’s Shingle Corporation is considering the purchase of a new
automated shingle-cutting machine. The new machine will reduce
variable labor costs but will increase depreciation expense.
Contribution margin is expected to increase from $303,660 to
$342,220. Net income is expected to be the same at $48,200.
Compute the degree of operating leverage before and after the
purchase of the new equipment. (Round answers to 1 decimal place,
e.g. 1.5.)
Degree of operating leverage (old) =
Degree of operating leverage (new)=
Colby Firestone Corporation is considering the purchase of a new machine to replace an old machine....
Colby Firestone Corporation is considering the purchase of a new
machine to replace an old machine. The new machine will cost
$135,000, has an installation cost of $5000, and will have an
expected life of five years with a salvage value of $5,000. The new
machine will require $2000 additional working capital. The new
machine will result in a cost savings of $20,000 a year. Sales are
expected to increase $9,000 per year. The old machine was purchased
five years...
Colby Firestone Corporation is considering the purchase of a new machine to replace an old machine....
Colby Firestone Corporation is considering the purchase of a new
machine to replace an old machine. The new machine will cost
$135,000, has an installation cost of $5000, and will have an
expected life of five years with a salvage value of $5,000. The new
machine will require $2000 additional working capital. The new
machine will result in a cost savings of $20,000 a year. Sales are
expected to increase $9,000 per year. The old machine was purchased
five years...
The management of Penfold Corporation is considering the purchase of a machine that would cost $300,000,...
The management of Penfold Corporation is considering the
purchase of a machine that would cost $300,000, would last for 5
years, and would have no salvage value. The machine would reduce
labor and other costs by $70,000 per year. The company requires a
minimum pretax return of 12% on all investment projects.
Click here to view Exhibit 13B-1 and Exhibit 13B-2 to determine
the appropriate discount factor(s) using the tables provided.
The net present value of the proposed project is...
The management of Urbine Corporation is considering the purchase of a machine that would cost $320,000...
The management of Urbine Corporation is considering
the purchase of a machine that would cost $320,000 would last for 5
years, and would have no salvage value. The machine would reduce
labor and other costs by $75 ,000 per year. The company requires a
minimum pretax return of 12% on all investment projects. (Ignore
income taxes in this problem.) The net present value of the
proposed project is closest to:
— $72 305
–$9,625
–$26,945
–$49,626
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