Samson Ltd is considering replacing equipment. The cost on 1.1.2023 will be £3m. The expected economic life of the equipment will be 4 years. The company depreciates its equipment using the straight-line methods. The company expects to sell this equipment for £400,000, after the end of its useful economic life. There are expected cost savings arising from this investment of £1,200,000 in each of years 1 and 2 and £800,000 in each of years 3 and 4. What is the payback of this investment? Select one answer: O 3 years and 2 months 0 2 years O 2 years and 9 months O 3 years Reset

Samson Ltd is considering replacing equipment. The cost on 1.1.2023 will be £3m. The expected economic life of the equipment will be 4 years. The company depreciates its equipment using the straight-line methods. The company expects to sell this equipment for £400,000, after the end of its useful economic life. There are expected cost savings arising from this investment of £1,200,000 in each of years 1 and 2 and £800,000 in each of years 3 and 4. What is the payback of this investment? Select one answer: O 3 years and 2 months 0 2 years O 2 years and 9 months O 3 years Reset

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 5PB: Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated...

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Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $420,000 and will generate $95,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further Instructions on internal rate of return in Excel, see Appendix C.
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DEF Ltd is currently considering an investment in a new project named Project Two. The project would involve an immediate purchase of capital equipment costing €1.5m. This equipment is expected to have a residual value in five years of €150,000, and will be depreci- ated over five years on a straight line basis. Sales of the new product will be €1.4m per annum for five years. DEF Ltd earns a contribu- tion of 45% on sales. The new product would require that a project manager be recruited at a salary of €50,000 per annum and the company will have to make annual contributions of €12,000 to fund the man- ager’s pension benefits. The new product will require an investment of €300,000 in working capital at the start of the project with a further €40,000 at the start of year two. Annual fixed overheads (excluding depreciation) relating to the new product are estimated at €65,000 and in addition there will be an allocation of central fixed overheads of €50,000. Research and development costs…
Hunt Ltd is considering replacing all its offset printing machinery. The cost on 1.1.X1 will be £2m. The expected economic life of the equipment will be 4 years. The company depreciates its equipment using the straight-line methods. The company expects to sell this equipment for £200,000, after the end of its useful economic life. There are expected cost savings arising from this investment of £900,000 in each of years 1 and 2 and £600,000 in each of years 3 and 4. Which is the payback period of this investment?
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Xespresso is launching a new type of espresso coffee machine. Production requires an initial investment of £85m in year zero. The project is expected to last 5 years, after which the new machine is expected to become obsolete and production will be discontinued. £10m are expected to be recovered in year 5 by selling production facilities. Sales of the new machine are expected to be worth £30m in each of years 1-5. Operating costs will be £10m per year in each of years 1-5. The company is expecting to accumulate an inventory equal to 10% of sales in year 1, which will be maintained throughout years 1-4 and then sold in year 5. Assume for simplicity that there are no taxes and all cash flows (including working capital investments) occur at the end of the year.a. Determine the project’s NPV using a 10% discount factor. Should the company undertake this project?b. Assume that the company has a beta equal to 2 and a debt to equity ratio equal to one. The risk free rate is 4% and the market…
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