The trustees of the Danube School of Art and Music, located in Tuttlingen, Germany, are considering a major overhaul of the school's audio system. With or without the overhaul, the system will be replaced in two years. If an overhaul is done now, the trustees expect to save the following repair costs during the next two years: year 1, 4,000 euros; year 2, 6,000 euros. The overhaul will cost 7,906 euros. (The euro is used in most European markets.) Use Appendix A for your reference. Note: Use appropriate factor(s) from the tables provided. Required: Use trial and error to compute the internal rate of return on the proposed overhaul. (Hint: The NPV of the overhaul is positive if an 12 percent discount rate is used, but the NPV is negative if a 20 percent rate is used.) Internal rate of return
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- The trustees of the Danube School of Art and Music, located in Tuttlingen, Germany, are considering a major overhaul of the school's audio system. With or without the overhaul, the system will be replaced in two years. If an overhaul is done now, the trustees expect to save the following repair costs during the next two years: year 1, 3,300 euros; year 2, 5,400 euros. The overhaul will cost 6,672 euros. (The euro is used in most European markets.) Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: Use trial and error to compute the internal rate of return on the proposed overhaul. (Hint: The NPV of the overhaul is positive if an 14 percent discount rate is used, but the NPV is negative if a 22 percent rate is used.) Internal rate of returnThe trustees of the Danube School of Art and Music, located in Tuttlingen, Germany, are considering a major overhaul of the school's audio system. With or without the overhaul, the system will be replaced in two years. If an overhaul is done now, the trustees expect to save the following repair costs during the next two years: year 1, 3,900 euros; year 2, 5,900 euros. The overhaul will cost 7,957 euros. (The euro is used in most European markets.) Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: Use trial and error to compute the internal rate of return on the proposed overhaul. (Hint: The NPV of the overhaul is positive if an 10 percent discount rate is used, but the NPV is negative if a 18 percent rate is used.) > Answer is complete but not entirely correct. Internal rate of return 22 X %Aerotron Electronics is considering purchasing a water filtration system to assist in circuit board manufacturing. The system costs $40,000. It has an expected life of 7 years at which time its salvage value will be $7,500. Operating and maintenance expenses are estimated to be $2,000 per year. If the filtration system is not purchased, Aerotron Electronics will have to pay Bay City $12,000 per year for water purification. If the system is purchased, no water purification from Bay City will be needed. Aerotron Electronics must borrow half of the purchase price, but they cannot start repaying the loan for 2 years. The bank has agreed to three equal annual payments, with the first payment due at the end of year 2. The loan interest rate is 8% compounded annually. Aerotron Electronics’ MARR is 10% compounded annually. a. What is the present worth of this investment? b. What is the decision rule for judging the attractiveness of investmentsbased on present worth? c. Should Aerotron…
- Aerotron Electronics is considering the purchase of a water filtration system to assist in circuit board manufacturing. The system costs $40,000. It has an expected life of 7 years at which time its salvage value will be $7,500. Operating and maintenance expenses are estimated to be $2,000 per year. If the filtration system is not purchased, Aerotron Electronics will have to pay Bay City $12,000 per year for water purification. If the system is purchased, no water purification from Bay City will be needed. Aerotron Electronics must borrow half of the purchase price, but it cannot start repaying the loan for 2 years. The bank has agreed to three equal annual payments, with the first payment due at the end of year 2. The loan interest rate is 8% compounded annually. Aerotron Electronics’ MARR is 10% compounded annually. Solve, a. What is the annual worth of this investment? b. What is the decision rule for judging the attractiveness of investments based on annual worth? c. Should…Aerotron Electronics is considering the purchase of a water filtration system to assist in circuit board manufacturing. The system costs $220,000. It has an expected life of 7 years at which time its salvage value will be $7,500. Operating and maintenance expenses are estimated to be $13,000 per year. If the filtration system is not purchased, Aerotron Electronics will have to pay Bay City $42,000 per year for water purification. If the system is purchased, no water purification from Bay City will be needed. Aerotron Electronics must borrow 1/2 of the purchase price, but they cannot start repaying the loan for 2 years. The bank has agreed to 3 equal annual payments, with the 1st payment due at the end of year 2. The loan interest rate is 8% compounded annually. Aerotron Electronics' MARR is 10% compounded annually. Part a What is the annual worth of this investment? $St. Anthony’s College is considering the replacement analysis of a concrete mixer. The old mixer has annual operating and maintenance costs of P35,000/yr. It can be kept for 5 years more. The old mixer can be sold to the manufacturer of the new mixer for P15,000. The new mixer will have a purchase price of P45,000 and it will have a value of P10,000 in five years’ time; and it will have annual operating and maintenance costs of P20,000/yr. If money is worth 15%, would you recommend for the replacement of the old concrete mixer?
- Yoga Ltd is requesting a purchase of an upgraded class streaming system with an installed cost of $574,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the system can be sold tor $20,000. The old system will be sold off for $10,000. The system will generate new tuition of $116,000 per year with negligible changes to operating costs. In year three the software license will need to be renewed at a cost of 15,000. The system requires an initial investment in net working capital of $15,000. If required rate of return is 10 percent, what is the present value of net cash flow for Year 3 (rounded to a whole number)?Cisco Systems is purchasing a new bar code–scanning device for its servicecenter in San Francisco. The table that follows lists the relevant cost items for this purchase. The operating expenses for the new system are $10,000 per year, and the useful life of the system is expected to be five years. The SV for depreciation purposes is equal to 25% of the hardware cost. Solve, a. What is the BV of the device at the end of year three if the SL depreciationmethod is used? b. Suppose that after depreciating the device for two years with the SL method, the firm decides to switch to the doubledeclining balance depreciation method for the remainder of the device’s life (the remaining three years). What is the device’s BV at the end of four years?Dell is evaluating the proposal of a new factory in an overseas country (Germany). The currency in the overseas country is Euro. Dell will be renting a premise of 50,000 Square feet for this facility. Annually the factory expects to sell 20,000 units of Keyboard at 3 euro per keyboard. Total capital cost is 20,000 euro and is depreciated using the straight-line method over five years to a zero-salvage value. The monthly salary expense will be 3000 euro, whereas annual utility and other expense will be 2,000 euro. The annual total rent is 5,000 euro. Variable costs are 10 per cent of annual sales revenue. Assume; initially, Dell will require 4,000 euro in working capital for this project. However, after the project, Dell will not receive anything from the working capital. Besides, there are no additional cash inflows and outflows from this project. The project does not have any tax implication. Calculate cash flows from the asset (CFFA) for this project.
- An auto-part manufacturing company is considering the purchase of an industrial robot to do spot welding, which is currently done by skilled labor. The initial cost of the robot is $250,000, and the annual labor savings are projected to be $125,000. If purchased, the robot will be depreciated under MACRS as a seven-year recovery property. This robot will be used for five years after which the firm expects to sell it for $50,000. The company's marginal tax rate is 35% over the project period.(a) Determine the net after-tax cash flows for each period over the project life.(b) Is this a good investment at MARR of 15%?A company in the region is planning for a new project that requires an investment in new machinery. The cost of machinery is RO 20,000. The total expenses to transport and install the machinery will be RO 5,000. Since the machinery uses the latest technology, it will result in a reduction of overall cost by RO 10,000. The company offers free maintenance for the machinery. Savings on account of the free maintenance will be RO 1,000 every year. The annual contract requires the company to pay RO 1,500 every year for vendor support. The total life of the project will be five years and it is expected that the machinery can be disposed at the end for 2,000. Straight-line depreciation is used by the company. The effective tax rate is 15%. Calculate Relevant Cash Flows for Capital Project 9050 9010 8765 9500Apricot Computers is considering replacing its material handling system and either purchasing or leasing a new system. The old system has an annual operating and maintenance cost of $31,000, a remaining life of 8 years, and an estimated salvage value of $4,800 at that time. A new system can be purchased for $284,000; it will be worth $24,000 in 8 years; and it will have annual operating and maintenance costs of $16,000/year. If the new system is purchased, the old system can be traded in for $22,000. Leasing a new system will cost $25,000/year, payable at the beginning of the year, plus operating costs of $7,400/year, payable at the end of the year. If the new system is leased, the old system will be sold for $9,600. MARR is 16%. Compare the annual worths of keeping the old system, buying a new system, and leasing a new system based upon a planning horizon of 8 years. Click here to access the TVM Factor Table Calculator For calculation purposes, use 5 decimal places as displayed in the…