Santana Rey is considering the purchase of equipment for Business Solutions that would allow the company to add a new p its computer furniture line. The equipment is expected to cost $316,560 and to have a six-year life and no salvage value. The equipment is expected to generate income of $13,239 and net cash flow of $64,377 in each year of its six-year life. Santana an 7% return on all investments. (PV of $1. EV of $1. PVA of $1, and EVA of $1) Note: Use appropriate factor(s) from the tables provided.) (Negative net present values should be indicated with a minut not round intermediate calculations. Round your present value factor to 4 decimals and final answers to the nearest whe number. Required: 1-a. Compute the payback period for this equipment. 1-b. Compute the net present value for this equipment. 1-c. Compute internal rate of return for this equipment. 2. If Santana requires investments to have payback periods of four years or less, should she invest in this equipment? 3. If Santana requires investments to have at least an 7% internal rate of return, should she invest in this equipment?

Santana Rey is considering the purchase of equipment for Business Solutions that would allow the company to add a new p its computer furniture line. The equipment is expected to cost $316,560 and to have a six-year life and no salvage value. The equipment is expected to generate income of $13,239 and net cash flow of $64,377 in each year of its six-year life. Santana an 7% return on all investments. (PV of $1. EV of $1. PVA of $1, and EVA of $1) Note: Use appropriate factor(s) from the tables provided.) (Negative net present values should be indicated with a minut not round intermediate calculations. Round your present value factor to 4 decimals and final answers to the nearest whe number. Required: 1-a. Compute the payback period for this equipment. 1-b. Compute the net present value for this equipment. 1-c. Compute internal rate of return for this equipment. 2. If Santana requires investments to have payback periods of four years or less, should she invest in this equipment? 3. If Santana requires investments to have at least an 7% internal rate of return, should she invest in this equipment?

Name: rr Santana Rey is considering the purchase of equipment for Business S
Uploaded: 2024-03-20T06:50:59.000Z
Channel: Bartleby
Description: rr Santana Rey is considering the purchase of equipment for Business Solutions that would allow the company to add a new product toits computer furniture line. The equipment is expected to cost $316,560 and to have a six-year life and no salvage valu

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 2CE

See similar textbooks

Similar questions

Manzer Enterprises is considering two independent investments: A new automated materials handling system that costs 900,000 and will produce net cash inflows of 300,000 at the end of each year for the next four years. A computer-aided manufacturing system that costs 775,000 and will produce labor savings of 400,000 and 500,000 at the end of the first year and second year, respectively. Manzer has a cost of capital of 8 percent. Required: 1. Calculate the IRR for the first investment and determine if it is acceptable or not. 2. Calculate the IRR of the second investment and comment on its acceptability. Use 12 percent as the first guess. 3. What if the cash flows for the first investment are 250,000 instead of 300,000?
Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. 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?
The Ham and Egg Restaurant is considering an investment in a new oven that has a cost of $60,000, with annual net cash flows of $9,950 for 8 years. The required rate of return is 6%. Compute the net present value of this investment to determine whether or not you would recommend that Ham and Egg invest in this oven.
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?
Success Ltd is evaluating whether it should invest today in a equipment that cost $250,000. With the new machine, the firm projects it will be able to receive $50,000 at the end of every year for the next 6 years. At the end of the 6 years, the company will scrap the machine and does not expect to receive any salvage value for it. The cost of capital for the firm is 9%. Calculate the internal rate of return (IRR) of this investment. Should the firm purchase the machine? Give your reason(s). You are to provide the full set of workings that is shown in the lecture notes (PowerPoint slides).
Happiny Corporation is considering the purchase of new equipment costing P300,000. The projected annual after-tax net income from the equipment is P12,000, after deducting P100,000 for depreciation. The revenue is to be received at the end of each year. The machine has a useful life of 3 years and no salvage value. Butler requires a 12% return on its investments. What is the net present value of the machine? Group of answer choices (P36,000). P(31,000). P36,000. P31,000. P300,000.
Pahy is considering the purchase of... Poe Company is considering the purchase of new equipment costing $80,000. The projected annual cash inflows are $30,200, to be received at the end of each yea machine has a useful life of 4 years and no salvage value. Poe requires a 10% return on its investments. The present value of an annuity of $1 and present value of an annuity for different periods are presented below. Compute the net present value of the machine (rounded to the nearest whole dollar). Periods 1 2 3 4 Present Value of $1 at 10% 0.9091 0.8264 0.7514 0.6830 Present Value of an Annuity of $1 at 10% 0.9091 1.7355 2.4869 3.1699 Help
Carlos Reyes is considering the purchase of equipment for Business Solutions that would allow the company to add a new product to its computer furniture line. The equipment is expected to cost $300,000 and to have a six-year life and no salvage value. The equipment is expected to generate income of $12,939 and net cash flow of $62,939 in each year of its six-year life. Santana requires an 8% return on all investments. Required: 1. Compute the payback period. (Round your final answer to 2 decimal places.) 2. Compute the accounting rate of return. (Round your final answer to 2 decimal places.) 3. Compute the net present value. (Do not round your intermdediate…
Grady Corp. is considering the purchase of a new piece of equipment. The equipment costs $50,700, and will have a salvage value of $5,070 after six years. Using the new piece of equipment will increase Grady's annual cash flows by $6110. Grady has a hurdle rate of 13%. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor from the PV tables.) a. What is the present value of the increase in annual cash flows? (Round your answer to 2 decimal places.) Present Value b. What is the present value of the salvage value? (Round your answer to 2 decimal places.) Present Value c. What is the net present value of the equipment purchase? (Negative value should be indicated by a minus sign. Round your intermediate calculation and final answer to 2 decimal places.) Net Present Value
Pablo Company is considering buying a machine that will yield income of $2,700 and net cash flow of $18,400 per year for three years. The machine costs $58,500 and has an estimated $11,400 salvage value. Pablo requires a 5% return on its investments. Compute the net present value of this investment. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your present value factor to 4 decimals.) Years 1-3 Totals Net present value Present Value of Net Cash Flows X PV Factor Net Cash Flows $ 0 = 0 = = =
Splash City is considering purchasing a water park in Atlanta, Georgia, for $1,870,000. The new facility will generate annual net cash inflows of $481,000 for eight years. Engineers estimate that the facility will remain useful for eight years and have no residual value. The company uses straight-line depreciation, and its stockholders demand an annual return of 10% on investments of this nature. Requirement 1. Compute the payback, the ARR, the NPV, the IRR, and the profitability index of this investment. First, determine the formula and calculate payback. (Round your answer to one decimal place, X.X.) Amount invested 1,870,000 Expected annual net cash inflow 481,000 $ Next, determine the formula and calculate the accounting rate of return (ARR). (Round the percentage to the nearest tenth percent, X.X%.) Average annual operating income Average amount invested 242250 Requirements 2. $ 1. Compute the payback, the ARR, the NPV, the IRR, and the profitability index of this investment.…
Pablo Company is considering buying a machine that will yield income of $2,200 and net cash flow of $15,100 per year for three years. The machine costs $50,700 and has an estimated $12,000 salvage value. Pablo requires a 10% return on its investments. Compute the net present value of this investment. (PV of $1, FV of $1, PVA of $1, and FVA of $1)