Reference no: EM131192439
Jetson Foundry is thinking about purchasing new sand-casting equipment that would reduce the time and cost of grinding customer orders to tolerance. The new equipment will cost $70,000 and it will take $15,000 to modify it for company needs. Transportation cost will be about $1,000. All these are depreciable. This kind of machine falls into the MACRS 7-year class but it is expected to run efficiently for ten years. At the end of ten years it is expected to have a salvage value is $2,000.The equipment will not affect revenues but it will reduce operating costs by $27,010. Most of the cost reduction comes from a reduction in the amount of abrasives needed to grind the finished product to specifications. So this means that inventory stocks will be reduced proportionally. The company’s policy is to carry 27 days (on a cost of goods sold basis) of inventories and this policy will not change. The company buys most of its abrasives from St. Gobain Abrasives in Worcester Mass. Because the company will be ordering fewer abrasive materials its accounts payable will decrease proportionally. Jetson has always paid its vendors in seven days. That is, the payables period is 22 days on a cost of goods sold basis.
The company’s cost of capital is 12% and, between state, local, and federal taxes, its marginal tax rate is 40%.
Evaluate this proposal using the capital budgeting criteria, NPV, IRR, MIRR, PI, Payback and Discounted Payback.
OF PARTICULAR INTEREST IS WHAT INPUTS FEED THIS MODEL -- Please solution in Excel
|
Portfolio required return-funds required rate of return
: Portfolio Required Return Suppose you manage a $4.91 million fund that consists of four stocks with the following investments: Stock Investment Beta A $460,000 1.50 B 500,000 -0.50 C 1,500,000 1.25 D 2,450,000 0.75 If the market's required rate of re..
|
|
What is the dollar price of the bond
: Union Local School District has bonds outstanding with a coupon rate of 4.7 percent paid semiannually and 22 years to maturity. The yield to maturity on these bonds is 4.1 percent and the bonds have a par value of $10,000. What is the dollar price of..
|
|
What will its approximate value be five years from now
: Ben Collins plans to buy a house for $150,000. If the real estate in his area is expected to increase in value by 1 percent each year, what will its approximate value be five years from now?
|
|
Reported free cash flows
: Free Cash Flow Iron Ore Corp. reported free cash flows for 2008 of $106 million and investment in operating capital of $189 million. Iron Ore listed $39 million in depreciation expense and $51 million in taxes on its 2008 income statement. What was I..
|
|
About purchasing new sand-casting equipment
: Jetson Foundry is thinking about purchasing new sand-casting equipment that would reduce the time and cost of grinding customer orders to tolerance. The new equipment will cost $70,000 and it will take $15,000 to modify it for company needs. Evaluate..
|
|
Proposes to expand his restaurant supply business
: Jim Krakauer proposes to expand his restaurant supply business by adding an HVAC repair unit. Currently his customers, almost all restaurant owners, buy or order equipment from his sow room floor or from a warehouse of used equipment located behind h..
|
|
What was your realized real return
: Suppose you earned a nominal 5% on your bank savings deposit, and actual inflation was 3.5%. What was your realized real return? If you had expected inflation to be 3%, what is your realized gain or loss in purchasing power versus what you expected?
|
|
We are talking about historical cost principle
: How to respond to this comment? We are talking about historical cost principle? Yes when a company holds the value of real estate over years it is going to do nothing but appreciate. As you said referring to machinery vs real estate items like that w..
|
|
The firm use to discount the project cash flows
: Titan Mining Corporation has 9.8 million shares of common stock outstanding and 420,000 5 percent semiannual bonds outstanding, par value $1,000 each. What is the firm's market value capital structure? If the company is evaluating a new investment pr..
|