(Ignore income taxes in this problem.) The management of Stanforth Corporation is investigating omating a process. Old equipment, with a current salvage value of $24,000, would be replaced by a new chine. The new machine would be purchased for $516,000 and would have a six-year useful life and no vage value. By automating the process, the company would save $173,000 per year in cash operating sts. The simple rate of return on the investment is closest to percent. A. 17.7 B. 16.9 C. 16.7 D. 33.5

(Ignore income taxes in this problem.) The management of Stanforth Corporation is investigating omating a process. Old equipment, with a current salvage value of $24,000, would be replaced by a new chine. The new machine would be purchased for $516,000 and would have a six-year useful life and no vage value. By automating the process, the company would save $173,000 per year in cash operating sts. The simple rate of return on the investment is closest to percent. A. 17.7 B. 16.9 C. 16.7 D. 33.5

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 10E: Roberts Company is considering an investment in equipment that is capable of producing more...

See similar textbooks

Similar questions

Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.
After discovering a new gold vein in the Colorado mountains, CTC Mining Corporation must decide whether to go ahead and develop the deposit. The most cost-effective method of mining gold is sulfuric acid extraction, a process that could result in environmental damage. Before proceeding with the extraction, CTC must spend 900,000 for new mining equipment and pay 165,000 for its installation. The mined gold will net the firm an estimated 350,000 each year for the 5-year life of the vein. CTCs cost of capital is 14%. For the purposes of this problem, assume that the cash inflows occur at the end of the year. a. What are the projects NPV and IRR? b. Should this project be undertaken if environmental impacts were not a consideration? c. How should environmental effects be considered when evaluating this or any other project? How might these concepts affect the decision in part b?
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?
Roberts Company is considering an investment in equipment that is capable of producing more efficiently than the current technology. The outlay required is 2,293,200. The equipment is expected to last five years and will have no salvage value. The expected cash flows associated with the project are as follows: Required: 1. Compute the projects payback period. 2. Compute the projects accounting rate of return. 3. Compute the projects net present value, assuming a required rate of return of 10 percent. 4. Compute the projects internal rate of return.
The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
The management of Ro Corporation is investigating automating a process. Old equipment, with a current salvage value of $21,000, would be replaced by a new machine. The new machine would be purchased for $462,000 and would have a 6 year useful life and no salvage value. By automating the process, the company would save $159,000 per year in cash operating costs. The simple rate of return on the investment is closest to (Ignore income taxes.): (Round your answer to 1 decimal place.) Garrison_16e_Rechecks_2019_10_12 Multiple Choice 18.6% 17.7% 34.4% 16.7%
The management of Ro Corporation is investigating automating a process. Old equipment, with a current salvage value of $11,000, would be replaced by a new machine. The new machine would be purchased for $243,000 and would have a 9 year useful life and no salvage value. By automating the process, the company would save $69,000 per year in cash operating costs. The simple rate of return on the investment is closest to (Ignore income taxes.): 18.1% 11.1% 28.4% 17.3%
The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $69,000. The machine would replace an old piece of equipment that costs $17,000 per year to operate. The new machine would cost $7,000 per year to operate. The old machine currently in use could be sold now for a salvage value of $23,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.) 1. Depreciation expense 2. Incremental net operating income 3 Initial…
The management of Roberts Corporation is investigating automating a process. Old equipment, with a current salvage value of $11,000, would be replaced by a new machine. The new machine would be purchased for $243,000 and would have a 9 year useful life and no salvage value. By automating the process, the company would save $69,000 per year in cash operating costs. The simple rate of return on the investment is closest to (Ignore income taxes.): 18.1% O 11.1% O 28.4% O 17.3%
Crowl Corporation is investigating automating a process by purchasing a machine for $808,200 that would have a 9 year useful life and no salvage value. By automating the process, the company would save $141,000 per year in cash operating costs. The new machine would replace some old equipment that would be sold for scrap now, yielding $22,800. The annual depreciation on the new machine would be $89,800. The simple rate of return on the investment is closest to (lgnore income taxes.): (Round your answer to 1 decimal place.) Multiple Cholce 11.28% 16.88% 6.52% 5.28% Mc Graw Hill |自0 P Type here to search 9:45 AM 49°F Mostly sunny 10/19/2021 20 DELL F2 F3 F4 F5 F6 F7 F8 F9 F10 F11 F12 PrtScr Insert Delete PgUp PgDn Home End %23 %24 & Num
The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $55,000. The machine would replace an old piece of equipment that costs $14,000 per year to operate. The new machine would cost $6,000 per year to operate. The old machine currently in use could be sold now for a salvage value of $20,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.)
Winneconne Company is considering replacing a machine with a book value of $400,000, a remaining useful life of 5 years, and annual straight-line depreciation of $80,000. The existing machine has a current market value of $400,000. The replacement machine would cost $550,000, have a 5-year life, and save $75,000 per year in cash operating costs. If the replacement machine would be depreciated using the straight-line method and the tax rate is 30%, what would be the net investment required to replace the existing machine?