Calculate the net present value

Assignment Help Accounting Basics
Reference no: EM133041029

Question - Trax Ltd is a manufacturer of high-quality plastic products made to demanding specifications, which makes replication of designs difficult. The company relies on marketing programmes to ensure that models are constantly changed, and that demand follows new designs. This allows the company to maintain margins in a highly competitive environment. Trax Ltd is considering the replacement of outdated equipment, which will allow the firm to manufacture a new line of products. The cost of the new equipment is R8,5 million and the company qualifies for a depreciation deduction of 40% of cost for the first year, and 20% in each of the subsequent three years. The equipment is also expected to reduce the cost of producing an existing product line by R180 000,00 per annum before tax for another four years, when the life of this product line is expected to end. The expected residual value of the equipment is R2,1 million in four years' time. The new line of products will result in a selling price of R85,00 per unit and variable cost of R38,00 per unit. The product line is expected to result in a constant demand of 70 000 units per annum for four years. The current tax value of the present equipment is R300 000,00 and its current market value is R410 000,00. The equipment is expected to have a residual value of zero in four years' time. The investment in net working capital will amount to R475 000,00. The marginal tax rate is 28% and the firm has a cost of capital of 12%.

1. Calculate the net present value (NPV), internal rate of return (IRR) and payback period (Pb) for the replacement.

1. State on the basis of the NPV, IRR and Pb whether the company should replace the equipment.

Reference no: EM133041029

Questions Cloud

Unique concept to the discussion : Read the Cohesion Case entitled, The Coca Cola Company, on pp. 28-37 of the text and visit the company website. Identify and explain one component of the case a
Resolve a dispute between confrontational stakeholders : Read the extract below and answer all questions that follow. According to the (PMBOK) Project Management Body of Knowledge Guide (2017:359) "Project Communicati
Determine what is Red Corporation expected rate of return : Red Corporation is a holding company with four main subsidiaries. Determine what is Red Corporation expected rate of return on these portfolios
Manufacturing presence in numerous countries : You were recently hired by ThunderCat Corporation, a major aircraft producer with a manufacturing presence in numerous countries.
Calculate the net present value : The investment in net working capital will amount to R475 000,00. Calculate the net present value
Find pc production : Acme Inc. produces computers for the PC market. They can produce four types of computers at their factory. These are discount desktops, discount laptops, premiu
Different between swot analysis and portfolio analysis : What is the different between swot analysis and portfolio analysis? Mention reference
Calculate the current price : Calculate the current price of a $5,000 par value bond that has a coupon rate of 10 percent, pays coupon interest quarterly
Explain the regulatory and organisational obligations : Identify and explain the regulatory and organisational obligations and requirements do you need to consider when preparing your presentation?

Reviews

Write a Review

Accounting Basics Questions & Answers

  What i need you to do is to prepare a complete set of

bobbi brown has come to me and asked for my help. sherecently started up a new consulting practice and needs some

  Determine ray basis in the s-corporation

Ray and Arnold form RA Corporation, an S Corporation, by contributing $50,000 each for a 50% interest and taking out a working capital loan in the amount.

  Explain how analytical procedures are useful in the risk

Explain how analytical procedures are useful in the risk assessment stage of audit and the substantive procedure stage of audit

  How much interest expense may she deduct this year

Assume that Lindy has $2,000 of interest income this year and no investment expenses. How much interest expense may she deduct this year

  What percentage did the store offer for each set purchased

If Mark bought two pairs of pants and two suit coats for a total of $558, what percentage did the store offer for each set purchased?

  Determine lori total deduction

Determine Lori's total deduction if the §179 expense is first taken with respect to the five-year class asset. What is your advice to Lori

  Prepare journal entries to account for the import purchase

Assume the olive oil was received on December 1, Year 1, and payment was made on January 31, Year 2. There was no attempt to hedge the exposure to foreign.

  Calculate the target cost per unit the company must achieve

The desired return on investment (ROI) is 10%. Calculate the target cost per unit the company must achieve to ensure it attains its desired ROI

  Balance sheet budget at the end of the quarter

Sons manufacture moulded plastic industrial storage boxes

  Will the butlers have more or less disposable income

Will the Butlers have more or less disposable income (after Federal income tax) in 2019? Write a letter to the Butlers that contains your advice and prepare.

  Describe a time when have worked with teams

Describe a time when you have worked with teams. Explain the disadvantages and advantages that you experienced while working in the teams.

  Prepare bob and mandy 1040 and supporting schedules

Bob has a very successful used car business located at 210 Ocean View Drive in Pensacola, Florida. Last year, you filed a Schedule C for Bob that had $1,200,000 in taxable income. Prepare Bob and Mandy 1040 and supporting schedules

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd