ACCT 212 Connect Homework 11 Capital Budgeting Assignment solutions complete answers

ACCT 212 Connect Homework 11 Capital Budgeting Assignment solutions complete answers 

 

Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $507,000 cost with an expected four-year life and a $10,000 salvage value. Additional annual information for this new product line follows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

 

A shoe manufacturer is evaluating new equipment that would custom fit athletic shoes. The new equipment costs $117,000 and will generate $45,000 in net cash flows for five years. (Negative cumulative cash flows should be indicated with a minus sign.)

 

Phoenix Company is considering investments in projects C1 and C2. Both require an initial investment of $246,000 and would yield the following annual net cash flows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

a. The company requires a 10% return from its investments. Compute net present values using factors from Table B.1 in Appendix B to determine which projects, if any, should be accepted.
b. Using the answer from part a, is the internal rate of return higher or lower than 10% for (i) Project C1 and (ii) Project C2? Hint: It is not necessary to compute IRR to answer this question.

 

OptiLux is considering investing in an automated manufacturing system. The system requires an initial investment of $6.0 million, has a 20-year life, and will have zero salvage value. If the system is implemented, the company will save $740,000 per year in direct labor costs. The company requires a 10% return from its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

 

A company is considering a $196,000 investment in machinery with the following net cash flows. The company requires a 10% return on its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

 

Information for two alternative projects involving machinery investments follows. Project 1 requires an initial investment of $268,000. Project 2 requires an initial investment of $170,000.

 

Following is information on two alternative investment projects being considered by Tiger Company. The company requires a 7% return from its investments.

 

Following is information on two alternative investments projects being considered by Tiger Company. The company requires a 15% return from its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

 

B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $371,200 and has a 8-year life and no salvage value. B2B Company requires at least an 8% return on this investment. The expected annual income for each year from this equipment follows: (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)  

 

B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $120,000 and has a 12-year life and no salvage value. The expected annual income for each year from this equipment follows.

 

A machine can be purchased for $220,000 and used for five years, yielding the following income. This income computation includes annual depreciation expense of $44,000.

 

A company is considering a $166,000 investment in machinery with the following net cash flows. The company requires a 10% return on its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

 

Beyer Company is considering buying an asset for $400,000. It is expected to produce the following net cash flows.

 

Beyer Company is considering buying an asset for $280,000. It is expected to produce the following net cash flows.

 

 
Year 1
Year 2
Year 3
Year 4
Year 5
Net cash flows
$68,000
$40,000
$74,000
$140,000
$21,000
 
Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a minus sign. Round your Payback Period answer to 2 decimal places.)

 

A company is considering a $172,000 investment in machinery with the following net cash flows. The company requires a 10% return on its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)
 

 
Year 1
Year 2
Year 3
Year 4
Year 5
Net Cash Flow
$10,000
$29,000
$57,000
$43,000
$115,000
 
(a) Compute the net present value of this investment.
(b) Should the machinery be purchased?

 

A machine can be purchased for $140,000 and used for five years, yielding the following income. This income computation includes annual depreciation expense of $28,000.
 

 
Year 1
Year 2
Year 3
Year 4
Year 5
Income
$9,500
$23,500
$64,000
$35,500
$94,000
 
Compute the machine’s payback period. (Round payback period answer to 2 decimal places.)

 

B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $360,000 and has a 12-year life and no salvage value. The expected annual income for each year from this equipment follows.

 

Sales of new product
$ 225,000
Expenses
 
Materials, labor, and overhead (except depreciation)
120,000
Depreciation—Equipment
30,000
Selling, general, and administrative expenses
22,500
Income
$ 52,500
 
(a) Compute the annual net cash flow.
(b) Compute the payback period.
(c) Compute the accounting rate of return for this equipment.

 

B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $374,400 and has a 6-year life and no salvage value. B2B Company requires at least an 9% return on this investment. The expected annual income for each year from this equipment follows: (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)  
 

Sales of new product
$ 234,000
Expenses
 
Materials, labor, and overhead (except depreciation)
82,000
Depreciation—Equipment
62,400
Selling, general, and administrative expenses
23,400
Income
$ 66,200

(a) Compute the net present value of this investment.
(b) Should the investment be accepted or rejected on the basis of net present value?

 

Following is information on two alternative investments projects being considered by Tiger Company. The company requires an 8% return from its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

 

 
Project X1
Project X2
Initial investment
$ (108,000)
$ (168,000)
Net cash flows in:
 
 
Year 1
39,000
81,000
Year 2
49,500
71,000
Year 3
74,500
61,000
 
a. Compute each project’s net present value.
b. Compute each project’s profitability index. If the company can choose only one project, which should it choose on the basis of profitability index?

 

Following is information on two alternative investment projects being considered by Tiger Company. The company requires a 5% return from its investments.

 

 
Project X1
Project X2
Initial investment
$ (112,000)
$ (184,000)
Net cash flows in:
 
 
Year 1
41,000
84,000
Year 2
51,500
74,000
Year 3
76,500
64,000
 
Compute the internal rate of return for each of the projects using Excel functions. Based on internal rate of return, indicate whether each project is acceptable. (Round your answers to 2 decimal places.)

 

Information for two alternative projects involving machinery investments follows. Project 1 requires an initial investment of $245,000. Project 2 requires an initial investment of $175,000.
 

Annual Amounts
Project 1
Project 2
Sales of new product
$ 144,000
$ 124,000
Expenses
 
 
Materials, labor, and overhead (except depreciation)
76,000
43,000
Depreciation—Machinery
31,000
29,000
Selling, general, and administrative expenses
19,000
31,000
Income
$ 18,000
$ 21,000

(a) Compute each project’s annual net cash flow.
(b) Compute payback period for each investment.

 

A company is considering a $171,000 investment in machinery with the following net cash flows. The company requires a 10% return on its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)
 

 
Year 1
Year 2
Year 3
Year 4
Year 5
Net Cash Flow
$10,000
$29,000
$56,000
$43,000
$115,000
 
(a) Compute the net present value of this investment.
(b) Should the machinery be purchased?

 

OptiLux is considering investing in an automated manufacturing system. The system requires an initial investment of $5.0 million, has a 20-year life, and will have zero salvage value. If the system is implemented, the company will save $620,000 per year in direct labor costs. The company requires a 10% return from its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

a. Compute the proposed investment’s net present value.
b. Using the answer from part a, is the investment’s internal rate of return higher or lower than 10%? Hint: It is not necessary to compute IRR to answer this question.

 

Phoenix Company is considering investments in projects C1 and C2. Both require an initial investment of $306,000 and would yield the following annual net cash flows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)
 

Net cash flows
Project C1
Project C2
Year 1
$ 38,000
$ 122,000
Year 2
134,000
122,000
Year 3
194,000
122,000
Totals
$ 366,000
$ 366,000

a. The company requires a 9% return from its investments. Compute net present values using factors from Table B.1 in Appendix B to determine which projects, if any, should be accepted.
b. Using the answer from part a, is the internal rate of return higher or lower than 9% for (i) Project C1 and (ii) Project C2? Hint: It is not necessary to compute IRR to answer this question.

 

A shoe manufacturer is evaluating new equipment that would custom fit athletic shoes. The new equipment costs $107,000 and will generate $42,000 in net cash flows for five years. (Negative cumulative cash flows should be indicated with a minus sign.)
 
Determine the break-even time for this equipment.

 

Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $511,000 cost with an expected four-year life and a $20,000 salvage value. Additional annual information for this new product line follows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)
 

Sales of new product
$ 1,950,000
Expenses
 
Materials, labor, and overhead (except depreciation)
1,489,000
Depreciation—Machinery
122,750
Selling, general, and administrative expenses
172,000
 
Required:
1. Determine income and net cash flow for each year of this machine’s life.
2. Compute this machine’s payback period, assuming that cash flows occur evenly throughout each year.
3. Compute net present value for this machine using a discount rate of 7%.