A firm believes it can generate an additional

Assignment Help Managerial Accounting

Reference no: EM13738108

A firm believes it can generate an additional $1,800,000 per year in revenues for the next 5 years (years 1-5) and $2,200,000 for the next 5 years after that (years 6-10) if it replaces existing equipment that is no longer usable with new equipment that costs $4,600,000. The existing equipment has a book value of $40,000 and a market value of $10,000. The firm expects to be able to sell the new equipment when it is finished using it (after 10 years) for $100,000. The contribution margin is expected to be 52% of revenue for the entire 10 years. The additional sales will require an initial investment in net working capital of $140,000, which is expected to be recovered at the end of the project (after 10 years). Assume the firm uses straight-line depreciation, its marginal tax rate is 25%, and the discount rate for the project is 9%.

a) How much value will this new equipment create for the firm?

b) At what discount rate will this project break even?

c) Should the firm purchase the new equipment? Be sure to justify your recommendation.

Reference no: EM13738108

Questions Cloud

Prepare a schedule of expected cash collections for april : 1. Prepare a schedule of expected cash collections for April, May, and June, and for the three months in total.2. Prepare a cash budget, by month and in total, for the three-month period.3. If the company needs a minimum cash balance of $20,000 to st..

What is the executional style used in each ad : The goal of this assignment is to look at how advertising can be used to create different positions for products in the same product category. What is the executional style used in each ad

Managerial decision making : Take a position on whether or not managerial groups within a large organization are more likely to make better decisions than individual managers within the same organization. Provide support for your position.

Organizational change scenario analysis : Prepare the first section of the HRM Consultancy Report, an analysis of the potential people management issues at play in the chosen scenario organization - Organizational change scenario analysis

A firm believes it can generate an additional : A firm believes it can generate an additional $1,800,000 per year in revenues for the next 5 years (years 1-5) and $2,200,000 for the next 5 years after that (years 6-10) if it replaces existing equipment that is no longer usable with new equipment t..

Wardens of a medium-to-large close-security prison : You are part of a team made up of the warden and assistant wardens of a medium-to-large close-security prison. You know inmates tend to riot or have sit-ins over the subject of food and medical care.

Create a supportive environment : Please discuss with your classmates what you can do to create a supportive environment in which your employees understand fair employment laws? Also, what communication strategies would you recommend?

Effective hrd program or training program objective : What role should objectives play in the design, implementation, and evaluation of HRD programs? What are the three essential features of an effective HRD program or training program objective?

Supervisory skills : You have just taken over as the head of Toyota's Quality Control Department. You are a Vice President (VP) and answer directly to the CEO. You have seven directors that answer to you. Each director manages one of the following divisions:

User Account

All Pages