Considering purchase of new packaging machine

Assignment Help Financial Management

Reference no: EM131322301

A toy manufacturer is considering purchase of a new packaging machine for $150,000. Annual labor savings are estimated to be $25,000 the first year and then increase 10% per year (geometric gradient). Routine maintenance will cost $2500 per year. The warranty will cover any major maintenance issues for the first 2 years, but the company will then purchase the major maintenance contract at a cost of $2000 per year, payable at the beginning of the year. The expected life of the equipment is 10 years.

If the company’s MARR is 10%, is the equipment justified? (Use NPV. Ignore depreciation and taxes)

Reference no: EM131322301

Questions Cloud

What is the best estimate of current stock price : Orwell building supplies' last dividend was $1.75. Its dividend growth rate is expected to be constant at 14.00% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required return (rs) is 12%. What is the best estima..

What is the expected year-end free cash flow : Judd Corporation has a weighted average cost of capital of 10.25%, and its value of operations is $57.50 million. Free cash flow is expected to grow at a constant rate of 6.00% per year. What is the expected year-end free cash flow, FCF1 in millions?

What is the payback period for project : Christopher Electronics bought new machinery for $5,120,000 million. this is expected to result in additional cash flow of $1,230,000 million over the next 7 years. what is the payback period for this project? their acceptance period is five years.

Calculate the principal repaid in the first payment : You borrow X for four years at an annual effective interest rate of 8%, to be repaid with equal payments at the end of each year. The outstanding loan balance at the end of the third year is 559.12. Calculate the principal repaid in the first payment..

Considering purchase of new packaging machine : A toy manufacturer is considering purchase of a new packaging machine for $150,000. Annual labor savings are estimated to be $25,000 the first year and then increase 10% per year (geometric gradient). Routine maintenance will cost $2500 per year.

Identify every breakeven point for overall option strategy : Identify every breakeven point for the overall option strategy.

What other factors may influence the value of a bond : Assume interest rates for bonds today is 5% for an AAA rated bond. Calculate the price of the bond you have selected relative to the 5%. Is the bond selling at a premium or a discount? Why? Be sure to show how you arrived at your answer. What other f..

How can not for profit increase their social media presence : How can a not for profit increase their social media presence? A stock has an expected return of 0.11 and a variance of 0.20. what is its coefficient of variation? While interest rates have been historically low for the past 8 years, rates are expect..

The weighted average cost of capital : The weighted average cost of capital is 9%, and the FCFs are expected to continue growing at a 3% rate after Year 5. The firm has $24 million of market-value debt, but it has no preferred stock or any other outstanding claims. There are 20 million sh..

User Account

All Pages