maintenance costs of this equipment are estimated to be about $25,000 per year. Salvage value is expected to be $50,000 at the end of its useful life. The life of this equipment is estimated to vary anywhere from 6 to 9 years with the associated probabilities as shown in the table below. If an interest rate of 8% is used, what is the expected EUAC for this equipment? Life, Years 6. 8 9. Probability 0.3 0.25 0.2 0.25
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- 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?You are also considering another project that has a physical life of 3 years—that is, the machinery will be totally worn out after 3 years. However, if the project were terminated prior to the end of 3 years, the machinery would have a positive salvage value. Here are the project’s estimated cash flows: Using the 10% cost of capital, what is the project’s NPV if it is operated for the full 3 years? Would the NPV change if the company planned to terminate the project at the end of Year 2? At the end of Year 1? What is the project’s optimal (economic) life?ChemCo is considering installing a new system for the production of composite materials that costs $215,000. The expected life of the system is 11 years and the salvage value is computed using the declining balance method with a depreciation rate of 15%. The expected annual savings will be $33,000. The MARR is 10%. (a) Calculate the salvage value of the system. (b) Graph the Present Worth VS Changes in the Annual Savings by varying the annual savings by + 15% in steps of 5%. Use Excel. (c) Calculate the break even Annual Savings value.
- Mountain Frost is considering a new project with an initial cost of $205,000. The equipment will be depreciated on a straight-line basis to a zero book value over the four-year life of the project. The projected net income for each year is $20,000, $20,900, $24,600, and $16,900, respectively. What is the average accounting return? Please make sure its correctA surface mount PCB placement/soldering line is to be installed for $1.6 million. It will have a salvage value of $100,000 after 5 years. Determine the depreciation deduction and the resulting unrecovered investment during each year of the asset’s life. Use declining balance depreciation with a rate that ensures the book value equals the salvage value.Current Attempt in Progress Your answer is partially correct. Hillsong Inc. manufactures snowsuits. Hillsong is considering purchasing a new sewing machine at a cost of $2.45 million. Its existing machine was purchased five years ago at a price of $1.8 million; six months ago, Hillsong spent $55,000 to keep it operational. The existing sewing machine can be sold today for $240,845. The new sewing machine would require a one-time, $85,000 training cost. Operating costs would decrease by the following amounts for years 1 to 7: Year 1 2 3 4 5 6 $391,000 399,100 411,000 426,000 433,200 435,300 436,500 The new sewing machine would be depreciated according to the declining-balance method at a rate of 20%. The salvage value is expected to be $379,800. This new equipment would require maintenance costs of $94,900 at the end of the fifth year. The cost of capital is 9%. Click here to view the factor table. Use the net present value method to determine the following: (If net present value is…
- A manufacturing company is considering acquiring a new injection-molding machine ata cost of $150,000. Because of a rapid change inproduct mix, the need for this particular machine isexpected to last only eight years, after which timethe machine is expected to have a salvage value of$10,000. The annual operating cost is estimatedto be $11,000. The addition of the machine to thecurrent production facility is expected to generatean annual revenue of $48,000. The firm has only$100,000 available from its equity funds, so it mustborrow the additional $50,000 required at an interest rate of 10% per year with repayment of principal and interest in eight equal annual amounts. Theapplicable marginal income tax rate for the firm is40%. Assume that the asset qualifies for a sevenyear MACRS property class.(a) Determine the after-tax cash flows.(b) Determine the NPW of this project atMARR = 14%.A business firm is contemplating to purchase new equipment. The purchase price is 60,000 and its annual operating cost is 2,675.4. The machine has a life of 7 years and is expected to generate 15,000 in revenues in each year of its life. Determine the internal rate of return of the machine, assuming zero salvage value.A hydraulic lift is purchased for a warehouse for $60,000. This lift is expected to generate $7000 in annual income for its useful life of 12 years. No Salvage value is expected. O&M costs are estimated to be $1000 annually. What is the approximate rate of return for this investment? [Enter your response as a percentage to one decimal point]
- Assume that a company Is considering purchasing a new plece of equlpment for $240,000 that would have a useful life of 10 years and no salvage value. The new equipment would cost $20,000 per year to operate and it would replace an old plece of equipment that costs $53,000 per year to operate. The old equipment currently belng used could be sold for a salvage value of $40,000. The simple rate of return for the new equipment is closest to: Multiple Cholce 4.50%. 7.55%. 12.00%. 20.00%.A company has decided to replace its inspection machine with an advanced one. The advanced machine costs $15,000 and will have operating costs of $3,600 in the first year, increasing by $2,000 per year thereafter. The expected salvage value of the new machine is $6,000 at the end of the first year and will decline by 10% of the preceding S.V. each year. Find the missing values in the following table and determine the economic life of the new machine. Total Cost (8%) CR (8%) OC (8%) 3,600 1 10,200 13,800 2 ? ? ... .... .. 3 4332.36 5,495.82 ? 4 ? 6,406.46 ? .......... . 3086.31 7,293.42 10,379.73 OPTIMAL n = A+ta ch CiloA chemical mixer was purchased 8 years ago for $100,000. If retained, it will require an investment of $50,000 to upgrade it; if upgraded, it will cost $35,000/year to operate and maintain (O&M) and will have a negligible salvage value after 5 years. A new mixer can be purchased for $120,000; it will have an annual O&M cost of $15,000 and a salvage value of $40,000 after 5 years. Alternatively, a mixer can be leased with 5 beginning-of-year lease payments of $20,000; O&M costs will be $18,000/year. If the mixer is replaced, the old mixer can be sold on the used equipment market for $15,000. Using an insider’s approach, what are (a) the EUAC of keeping the current mixer, (b) the EUAC of replacing with a new mixer, and (c) the EUAC of replacing with a leased mixer? The MARR is 10%.