Estimate the Benefit, Salvage Value, and Useful Life for each alternative. Harry Broderick (HB) owns Jettison Scrap and Salvage Company (JSSC). HB wants to buy a ship to salvage debris from the Great Pacific Garbage Patch for 5 years then quit. The following are projections for the project: Project MARR = 10% Inflation is a constant 2% All Monies x $IK Capital Cost Useful Life (Years) OPT MOST OPT Benefit Alternatives Salvage (per Year) MOST ОРТ MOST 1A 200 100 120 100 200 10 15 2B 225 150 190 100 225 11 17 30 300 200 225 140 300 15 20 Probabilities ?? OPTimistic 70% | MOST likely

Estimate the Benefit, Salvage Value, and Useful Life for each alternative. Harry Broderick (HB) owns Jettison Scrap and Salvage Company (JSSC). HB wants to buy a ship to salvage debris from the Great Pacific Garbage Patch for 5 years then quit. The following are projections for the project: Project MARR = 10% Inflation is a constant 2% All Monies x $IK Capital Cost Useful Life (Years) OPT MOST OPT Benefit Alternatives Salvage (per Year) MOST ОРТ MOST 1A 200 100 120 100 200 10 15 2B 225 150 190 100 225 11 17 30 300 200 225 140 300 15 20 Probabilities ?? OPTimistic 70% | MOST likely

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 13EB: Conestoga Plumbing plans to invest in a new pump that is anticipated to provide annual savings for...

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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?
Redbird Company is considering a project with an initial investment of $265,000 in new equipment that will yield annual net cash flows of $45,800 each year over its seven-year life. The companys minimum required rate of return is 8%. What is the internal rate of return? Should Redbird accept the project based on IRR?
Washington-Pacific (W-P) invested $4 million to buy a tract of land and plant some young pine trees. The trees can be harvested in 10 years, at which time W-P plans to sell the forest at an expected price of $8 million. What is W-P’s expected rate of return?
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