Question
In: Finance
It is desired to compare the after-tax economics of two mutually exclusive alternatives with the following...
It is desired to compare the after-tax economics of two mutually exclusive alternatives with the following before-tax data for a study period (planning horizon) of 4 years:
Semiautomatic Machine Automatic Machine
First cost $100,000 $150,000
Useful life 4 years 5 years
Market value at end of useful life $0 $0
Annual before-tax cash disbursements $50,000 $15,000
Annual cash revenues $110,000 $90,000
MARR (after tax) = 15% p.a.
Study Period = 4 years
Both alternatives are to be depreciated using straight-line depreciation over the life of the machine. It is assumed that the automatic machine can be sold at the book value after 4 years,
I.e. 20% of the first cost of the machine after 4 years of depreciation.
A 40% tax rate is assumed.
Which alternative is preferred on the basis of net present value?
Can i have a detailed answer, please! And also not in excel.
Solutions
jeff jeffy answered 1 year agoRelated Solutions
A manufacturing company is considering two mutually exclusive alternatives. Alternatives &nb
A manufacturing company is considering two mutually
exclusive alternatives.
Alternatives
Alt. A Alt. B
Initial
cost
$ 42,500 $ 70,000
Annual costs
O &
M
$ 6,000 $ 4,000
Annual savings $
18,500 $ 20,000
Residual value $
12,000 $ 25,000
Shelf
life
3 years 6 years
What would be the "advantage" in annual terms of
Alternative B versus Alternative A at 15% interest?
Select one:
a. $ 3020
b. $ 3500
c. $ 7436
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Two mutually exclusive alternatives are bring considered: A and
B. Both alternatives cost $1,200 at the present. However, the
pattern of revenue from them is different. Alternative A has the
potential to bring more revenues later in the project life. The
expected revenues of alternative A are: $350, $500, and $850 by the
ends of years one to three, respectively. Alternative B promises
more immediate cash inflow which is expected to diminish with time:
$750, $300, and $100 by the...
Two mutually exclusive alternatives are bring considered: A and B. Both alternatives cost $1,200 at the...
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B. Both alternatives cost $1,200 at the present. However, the
pattern of revenue from them is different. Alternative A has the
potential to bring more revenues later in the project life. The
expected revenues of alternative A are: $350, $500, and $850 by the
ends of years one to three, respectively. Alternative B promises
more immediate cash inflow which is expected to diminish with time:
$750, $300, and $100 by the...
The following two projects of equal risk are mutually exclusive alternatives for expanding the firm’s capacity....
The following two projects of equal risk are mutually exclusive
alternatives for expanding the firm’s capacity. The firm’s cost of
capital is 15%. The cash flows for each project are given in the
following table.
Year Project A Project B
0 210,000 20,000
1 15,000 12,000
2 30,000 10,500
3 32,000 9,500
4 425,000 8,200
Required:
a) Calculate each project’s payback period. Using the payback
period criterion which project is preferable? b)
Calculate the net present value for each project....
The following two projects of equal risk are mutually exclusive alternatives for expanding the firm’s capacity....
The
following two projects of equal risk are mutually exclusive
alternatives for expanding the firm’s capacity. The firm’s cost of
capital is 15%. The cash flows for each project are given in the
following table.
PROJECT A
PROJECT B
Initial investment
210,000
20,000
Year
Net cash inflows
Net cash inflows
1
15,000
12,000
2
30,000
10,500
3
32,000
9,500
4
425,000
8,200
A firm has two $1,000, mutually exclusive investment alternatives with the following cash inflows. The cost...
A firm has two $1,000, mutually exclusive investment
alternatives with the following cash inflows. The cost of capital
is 6 percent. Year Cash Inflow A B 1 $175 $1,100 2 175 - 3 175 - 4
175 - 5 175 - 6 175 - 7 175 - 8 175 - a. What is the internal rate
of return on each investment? Which investment should the firm
make? b. What is the net present value of each investment? Which
investment should...
Two mutually exclusive cost alternatives, Machine A and Machine B, are being evaluated. Given the following...
Two mutually exclusive cost alternatives,
Machine A and Machine B, are being evaluated.
Given the following time events and incremental cash flow, if
the MARR is 12% per year, which alternative (Machine A or Machine
B) should be selected on the basis of the incremental rate of
return analysis? Assume Machine B requires the extra $10,000
initial investment. (You can use Excel).
Year
Incremental Cash Flow ($)
(Machine B - Machine A)
0
-10,000
1 - 4
1,300
5...
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There are three mutually exclusive alternatives, as vendors to outsource a project, with the following cash...
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outsource a project, with the following cash flow and useful life.
Which of these three alternatives would you recommend to be
selected? The MARR is 10% per year.
Vendor 1
Vendor 2
Vendor 3
First Cost
$60,000
$35,000
$25,000
Annual operating and maintenance cost
$3,000 every 4 years
$1,000 per year
$2,000 in yr 1 and it increases by $200 every year
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Salvage value
$10,000
$4,000
$3,000
Useful life, years...
Evaluate the following mutually exclusive alternatives with a horizon of 25 years and a minimum acceptable...
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horizon of 25 years and a minimum acceptable rate of return of 15
percent using the conventional benefit-cost ratio and net present
worth analysis. Which project would you choose and why?
A
B
C
Initial Investment
9,500
18,500
22,000
Annual Savings
3,200
5,000
9,800
Annual Costs
1,000
2,750
5,400
Salvage Value
6,000
4,200
14,000
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