Covington Corporation purchased a vibratory finishing machine for $24,000 in year 0. The useful life of the machine is 10 years, at the end of which the machine is estimated to have a salvage value of zero. The machine generates net annual revenues of $7,000. The annual operating and maintenance expenses are estimated to be $500. If Covington's MARR is 18%, how many years will it take before this machine becomes profitable? Assume that the cash flows occur continuously throughout the year. COORD It will take years before this machine becomes profitable. (Round to one decimal place.)

Covington Corporation purchased a vibratory finishing machine for $24,000 in year 0. The useful life of the machine is 10 years, at the end of which the machine is estimated to have a salvage value of zero. The machine generates net annual revenues of $7,000. The annual operating and maintenance expenses are estimated to be $500. If Covington's MARR is 18%, how many years will it take before this machine becomes profitable? Assume that the cash flows occur continuously throughout the year. COORD It will take years before this machine becomes profitable. (Round to one decimal place.)

Name: =Covington Corporation purchased a vibratory finishing machine for $2
Uploaded: 2024-03-20T06:50:59.000Z
Channel: Bartleby
Description: =Covington Corporation purchased a vibratory finishing machine for $24.000 in year 0. The useful life of the machine is10 years, at the end of which the machine is estimated to have a salvage value of zero. The machine generates netannual revenues o

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 3P

See similar textbooks

Similar questions

Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
Consider a machine purchased one year ago for $18,000. The machine is being depreciated $3,000 per year throughout a six-year period. Its current market value is $6,000, and the expected market value of the machine one year from now is $4,000. If the interest rate is 10%, the expected cost of holding the machine during the next year is $___.
Sad Company is considering the purchase of a new machine that would cost $80,000. The machine would have a useful life of 8 years. Sad Company plans on using straight-line depreciation with an estimated salvage value of $0. Sad Company has a hurdle rate of 12% and is subject to an income tax rate of 80%. The annual cash income is estimated to be $50,000. PV . 1- The Accounting Rate of Return (AROR) is: 10 % 11 % 12 % 9 % 8 % 2-The Net Present Value (NPV) is: $10,424 $9,424 $11,424 $8,424 $11,424 3-The Profitability Index (PI) is: 1.02 1.12 1.22 0.92 0.82 The Payback period is: A. 4.044 years B. 4.144 years C. 4.244 years D. 4.344 years E. 4.444 years Using interpolation, the Internal Rate of Return (IRR) is: 14.4 % 13.4 % 12.4 % 15.4 % 16.4 %
Beaver Corporation is investigating the purchase of a new threading machine that costs $18,000. The machine would save about $4,000 per year over the present method of threading component parts and would have a salvage value of about $3,000 in 6 years when the machine would be replaced. The company's required rate of return is 12%. The machine's net present value is closest to: A. B. $1,556 C. $11,000 D. $8,000
Michelle Amabo Company is planning to buy a new machine that can produce additional 20,000 units of product per year. The product sells for P50 each. The cost associated with the product is P30 per unit, exclusive of depreciation on the new machine. The new machine which is expected to last for 10 years will cost P500,000. No salvage value is expected to be recovered at the end of its life. The income tax rate is 35%. Required: 1. Accounting net income 2. Annual net cash inflows from the new machine.
K Company has purchased a new machine costing $27,000 and the machine is expected to reduce the operating expenses by $7,000 every year. The useful life of machine is 5 years and the machine is expected to have a zero-scrap! value at the end of its useful life. The company's required rate of return is 12%. Calculate the Net Present Value (NPV) of the machine. (Round intermediate calculations to 3 decimal places and final answer to the nearest dollar.)
Macoupin Mining Inc. must purchase a new coring machine that costs $60,000 and will last 15 years with a salvage value of $12,000. The annual operating expenses will be $9000 the first year, increasing by $200 each year thereafter. The annual income is $15,000 per year. If Macoupin’s MARR is 8%, determine the net future worth of the machine purchase.
Assume that a company buys a new machine for $220,000 that has a useful life of five years and a $20,000 salvage value. The new machine will replace an old machine that can be sold for a salvage value of $10,000. The machine will generate incremental contribution margin of $42,000 per year. The only fixed expense associated with the new machine is its annual depreciation of $40,000 per year. What is the payback period for this investment? Multiple Choice 5.0 years 12.0 years 5.167 years 11.0 years
Assume that a company purchased a new machine for $19,000 that has a salvage value of $3,000 at the end of its useful life of five years. The machine is expected to save the company $6,000 a year in cash operating costs for five years. The company’s discount rate is 15%. The profitability index of this investment opportunity is closest to:
A machine has a first cost of $10,000 and an expected salvage value of $900 when it is sold. Annually, the operating cost is $500, and the revenue generated from sales is $2,500. What is the payback period assuming a MARR of 20% per year, an effective tax rate of 15%, and straight line depreciation over 5 years taking into account the salvage value (note, even though the machine might be fully depreciated down to its salvage value for tax purposes, assume the machine can continue to operate forever and that it will never be sold).
A firm can purchase a centrifugal separator (5-year MACRS property) for $22,000. The estimated salvage value is $4,000 after a useful life of six years. Operating and maintenance (O&M) costs for the first year are expected to be $2,200. These O&M costs are projected to increase by $1,000 per year each year thereafter. The income tax rate is 24% and the MARR is 11% after taxes. What must the uniform annual benefits be for the purchase of the centrifugal separator to be economical on an after-tax basis? CAN YOU DO THIS PROBLEM BY HAND? AND NOT USING EXCEL I WOULD REALLY APPRECIATE IT!!!!
Alpha Company is planning to invest in a machine, the use of which will result in the following:• Annual revenues of $ l 0.000 in the first year and increases of $5,000 eachyear. up to year 9. From year IO. the revenues will remain constant ($52,000)for an indefinite period.• The machine is to be overhauled every 10 years. TI1c expense for each overhaul is $40.000.If Alpha expects a present worth of at least $100,000 at a MARR of 10% forthis project. what is the maximum investment that Alpha should be prepared to make?(a) $250.140(b) $67.697(c) $350, 100(d) $509.600