• Assume each widget will cost $10.00 each to produce and the selling price will be $18.00. Production fixed costs are expected to be $325,000 annually. • The company has computed that the PVCCATS associated with this project will be $247,000. Also, the company uses a discount rate of 14% for capital projects and XYZ pays tax at a rate of 5%. XYZ is unsure as to how many widgets they will sell annually. The marketing department has provided that the expected number of units sold annually, N is E(N) = 77,000 units with a standard deviation of σ = 8,000 units. (a) Compute the expected NPV, E(NPV) of this project. 数字 (b) Compute the standard deviation of the NPV of this project. 数字 (c) Compute the NPV breakeven point of this project. 数字 units. (d) Based on the expected NPV calculation, should XYZ Inc proceed with this project? O Yes No

• Assume each widget will cost $10.00 each to produce and the selling price will be $18.00. Production fixed costs are expected to be $325,000 annually. • The company has computed that the PVCCATS associated with this project will be $247,000. Also, the company uses a discount rate of 14% for capital projects and XYZ pays tax at a rate of 5%. XYZ is unsure as to how many widgets they will sell annually. The marketing department has provided that the expected number of units sold annually, N is E(N) = 77,000 units with a standard deviation of σ = 8,000 units. (a) Compute the expected NPV, E(NPV) of this project. 数字 (b) Compute the standard deviation of the NPV of this project. 数字 (c) Compute the NPV breakeven point of this project. 数字 units. (d) Based on the expected NPV calculation, should XYZ Inc proceed with this project? O Yes No

Name: Q.1. XYZ Inc is looking at a project to manufacture widgets. Assume we
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Description: Q.1. XYZ Inc is looking at a project to manufacture widgets. Assume we have the following data:• The initial cost of the project is $1,300,000.• The project is expected to last 6 years, at which time the project will be abandon.Assume each widget wil

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 15E: Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided...

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Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
The management of a manufacturing company is planning to buy a new milling machine. The investment cost is $17,613. At the end of its 6-year expected life, the equipment will have a salvage value of $8,000. There is an upgrade cost of $9,572 at the end of year 3. The equipment can save $5,000 per year by increasing productivity. Suppose that ϵ=MARR=18%. Determine the project’s ERR.
ABC Corp is considering a project to create new widgets. The project will last for 7 years They plan to sell 10,000 widgets in year one and the number of widgets will increase by 3% each year. They will sell the widgets for $10 each and the cost to produce the widgets will be $4 per unit. Fixed costs are expected to be $40,000. The project will require an initial capital investment of $100,000 which will be depreciated using a 5 year MACRS schedule(See Table 6.3 in the book). In year 7, the equipment can be salvaged for $10,000. Net Working Capital will be 5% of the next years projected sales. The tax rate is 21% and the Discount rate is 12%. What is the operating cash flow sensitivity to units sold in year 1? 3.89 4.74 O 5.62 O 6.00
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Your company is considering the introduction of a new product line. The initial investment required for this project is $500,000, and annual maintenance costs are anticipated to be $45,000. Annual operating costs will be directly proportional to the level of production at $8.50 per unit, and each unit of product can be sold for $65. If the MARR is 15% and the project has a life of 5 years, what is the minimum annual production level for which the project is economically viable?
OptiLux is considering investing in an automated manufacturing system. The system requires an initial investment of $6.0 million, has a 20-year life, and will have zero salvage value. If the system is implemented, the company will save $740,000 per year in direct labor costs. The company requires a 10% return from its investments. Using Excel, compute the internal rate of return for the proposed investment. (Round your answer to 2 decimal places.) Internal rate of retum
The plant manager of IHK is considering the purchase of a new robotic assemble plant. The new robotic line will cost $250,000. The manager believes that the new investment will result in direct labor savings of $62,500 per year for ten years.Requirements:a. What is the payback period for this projectb. What is the net present value or PV assuming a 10% rate of return?c. Should the plant manager accept or reject the project?d. What else should the manager consider in the analysis?