RYN steel works bought an innovative equipment for steel beam manufacturing. The company expects to produce 200 I-beams at Php 32,000 per beam in each of the first 3 yrs, after which the company expects to produce I-beams per year at Php 40,000 per beam through yr 8. If the company’s minimum attractive rate of return is 15% per yr, what is the present worth of the expected income?

RYN steel works bought an innovative equipment for steel beam manufacturing. The company expects to produce 200 I-beams at Php 32,000 per beam in each of the first 3 yrs, after which the company expects to produce I-beams per year at Php 40,000 per beam through yr 8. If the company’s minimum attractive rate of return is 15% per yr, what is the present worth of the expected income?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 17EB: Caduceus Company is considering the purchase of a new piece of factory equipment that will cost...

See similar textbooks

Similar questions

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?
The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of 170,000. The project will produce 1,000 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be 138 per case, and the Year-1 cost per case will be 105. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 6% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. a. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? b. Suppose that the company had forgotten to include future inflation. What would they have incorrectly calculated as the projects NPV?
Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 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.
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.
Pittsburgh Custom Products (PCP) purchased a new machine for ram-cambering large I beams. PCP expects to bend 50 beams at $1,200 per beam in each of the first 3 years, after which it expects to bend 100 beams per year at $2,900 per beam through year 12. If the company's minimum attractive rate of return is 15% per year, what is the present worth of the expected revenue? The present worth of the expected revenue is $
Pittsburgh Custom Products (PCP) purchased a new machine for ram cambering large I beams. PCP expects to bend 80 beams at $2000 per beam in each of the first 3 years, after which it expects to bend 100 beams per year at $2500 per beam through year 8. If the company’s minimum attractive rate of return is 18% per year, what is the present worth of the expected revenue?
Limitless Ltd. is planning to buy a new warehouse to store its production output. Theinvestment would require £500,000 to be paid upfront. Thanks to the new warehouse,the company expects to increase its profits by £120,000 annually for the next five years,and then £60,000 for the following five years. 1. Calculate the Net Present Value (NPV) of this investment opportunity if the cost ofcapital is 12%. 2. What is the payback period of this investment?
Assume the following facts: A project will cost RM45 000 to develop. When the system becomes operational, after a one-year development period, operational costs will be RM9000 during each year of the system’s five year useful life. The system will produce benefits of RM30 000 in the first year of operation, and this figure will increase by 10% each year. When is the payback period for this project? Using the same facts, what is the ROI for this project? Using the same facts, what is the NPV for this project? (*Assuming 12% rate)
Engr Riley proposed to expand the efficiency of her equipment. The equipment will have a market value of Php 150,000 at the end of study period of 6years and its initial cost is Php 1,250,000. She expects a revenue of Php 400,000 per yr extra operating costs have been subtracted. If the firm’s minimum acceptable rate of return is 20% per yr, is this proposal justifiable? Use present-worth method.
A firm has installed a manufacturing line for packaging materials. The firm plans to produce 45 tons of packing peanuts at $4000 per ton annually for 3 years, and then 60 tons of packing peanuts per year at $5000 per ton for the next 5 years. What is the present worth of the expected income? The firm’s interest rate is 15% per year.
The Chum Company is considering the production of a new product line which will require an investment of P 3 000 000 with P 200 000 salvage value. The investment will have a useful life of ten years during which annual cash inflows before income tax of P 1 400 000 are expected. The income tax rate is 40%. Required: Annual net income Average return on investment Average return on average investment
The plant manager of Jurassic Industries is considering the purchase of new automated assembly equipment. The new equipment will cost $120,000. The manager believes that the new investment will result in direct labor savings of $24,000 per year for 10 years. a. What is the payback period on this project?fill in the blank 1 years b. What is the net present value, assuming a 12% rate of return? Use the table provided below. If required, enter a negative net present value using a minus sign. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 Net present value: $fill in the blank 2