Manufacture fine wire for electronics industries

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Question 1.

Proven Specialists will spend $850,000 on equipment that will manufacture fine wire for the electronics industries. The shipping and installation charges will be $220,000 and net working capital will increase to $28,000. The equipment will replace an existing machine that has a salvage value of $85,000 and a book value of $122,000. If Proven Specialists has a current marginal tax rate of 32 percent what is the net investment?

Question 2.

Sancheti Company, a maker of skating gear, is evaluating two alternative presses. Press A costs $85,000, has a 4-year life, and is expected to generate annual cash inflows of $30,500 each of the 4 years. Press B costs $123,500, has an 8-year life, and is expected to generate annual cash inflows of $25,300 each of 8 years. The cost of replacement for Press A is $86,000, and the replacement press will generate cash inflows of $32,200 for another 4 years. Sancheti company uses a 13% cost of capital. Which press should be chosen and why?

Reference no: EM133291503

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