Purchase of diesel power shovel to improve its productivity

Assignment Help Financial Management
Reference no: EM131089246

The ABC Construction Company is considering the purchase of a diesel power shovel to improve its productivity. The company finances the purchase by borrowing from a local bank with no rite with the compounded interests (annual nominal interest The hank compounds the financial charges semi-annually. The shovel, which to produce a benefit of $50,000 in the first year, and $4,000 less in each succeeding year for a total of five years (i.e., benefit of $46,000 in the second year. $42,000 in the year. continuing to $34,000 in the fifth year). The annual maintenance and operation cost of the equipment is $15,000 over 5 years. The company will sell the equipment with the expected resale price of $5,000 at the end of Year 5. Draw cash flow diagrams and determine whether the purchase is worthwhile at the MARR of 12%.

Reference no: EM131089246

Questions Cloud

The euro increased dramatically in value : The Euro increased dramatically in value against the U.S dollar between 2000 and 2009. The result has been that
Pick the least-expensive car for your new delivery service : You are trying to pick the least-expensive car for your new delivery service. You have two choices: the Scion xA, which will cost $19,500 to purchase and which will have OCF of –$2,300 annually throughout the vehicle’s expected life of three years as..
How is it different from accounting breakeven point : Luke Athletics Inc. has purchased a $200,000 machine to produce tennis balls. The machine will be fully depreciated by the straight-line method for its economic life of five years and will be worthless after its life. What will be the impact of a dec..
Planning to purchase MRI and ultrasound equipment : Regional Healthcare System is a for-profit entity and is planning to purchase an MRI and ultrasound equipment for its new imaging center. The equipment will generate $3,000,000 per year in revenues for the next (5) years.
Purchase of diesel power shovel to improve its productivity : The ABC Construction Company is considering the purchase of a diesel power shovel to improve its productivity. The company finances the purchase by borrowing from a local bank with no rite with the compounded interests (annual nominal interest The ha..
Based on the residual distribution policy : Based on the residual distribution policy (with all distributions in the form of dividends), the payout ratio is 60 percent. How large (in millions of dollars) will the capital budget be? Show solution step by step.
Comparing two different capital structures : Cooke Co. is comparing two different capital structures. Plan I would result in 8,700 shares of stock and $399,000 in debt. Plan II would result in 12,500 shares of stock and $239,400 in debt. What is the price per share of equity under plan l?
Cash flows to concisely convey the maximum information : The Blandings Home construction company purchased a new crane for $350,000 this year. It sold the crane for $80,000. At the time it had a net book value of $20,000. Constrict the Cash Flow from investing activities section of the the statement of cas..
Discuss various measures of capital market efficiency : Discuss various measures of capital market efficiency and how efficient capital markets contribute to the efficiency in the market for goods and services (including productive capital). As part of your discussion, consider the implications of the fac..

Reviews

Write a Review

Financial Management Questions & Answers

  Target capital structure that consists debt and equity

Axel Telecommunications has a target capital structure that consists of 30% debt and 70% equity. The company anticipates that its capital budget for the upcoming year will be $2,000,000. If Axel reports net income of $3,000,000 and it follows a resid..

  Steps of financial analysis at the organizational level

Explain the three steps of financial analysis at the organizational level. What is the purpose of creating a balance sheet? List the three general classifications of the balance sheet and possible categories under these classifications. For the state..

  What is expected capital gains yield for each of four stocks

Consider four different stocks, all of which have a required return of 20 percent and a most recent dividend of $3.40 per share. Stocks W, X, and Y are expected to maintain constant growth rates in dividends for the foreseeable future of 10 percent, ..

  What is firm pro forma times interest earned ratio

As CFO of Nile Holdings, a carpet wholesaler, you have the following information as of December 2011: Nile has an attractive investment opportunity, and to finance it, must decide whether to issue $100 million in new debt or new equity. Assume Nile r..

  Repeat the preceding hypothesis test using

For a sample of 400 individuals who filed a tax return between April 10 and 15, the sample mean refund was $910. Based on prior experience a population standard deviation of o=$1600 may be assumed. What is the p-value?

  What is the companys expected rate of return

The Fun Company's stock has a 50% chance of producing a 23% return, a 30% chance of producing a 20% return and 20% chance of producing a -29% return. What is the company's expected rate of return?

  What price should a share sell

The risk-free rate of return is 6%, the required rate of return on the market is 12%, and High-Flyer stock has a beta coefficient of 1.0. If the dividend per share expected during the coming year, D_1 is $2.00 and g = 4%, at what price should a share..

  Value of the terminal year non-operating cash flows

The president of Lowell Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer’s price is $60,000, and it falls into the MACRS 3-year class (33% in year 1, 45% in year 2, 15% in year 3, and 7% in year 4). What is the ..

  Currently bonds with a similar credit rating and maturity

Currently bonds with a similar credit rating and maturity as the firm's outstanding debt are selling to yield 8.32% while the borrowing firm’s corporate tax rate is 34%. The after tax cost of debt for the firm is ________% Common stock for a firm tha..

  Use the present value formula

Think of something you want or need for which you currently do not have the funds. It could be a vehicle, boat, horse, jewelry, property, vacation, college fund, retirement money, etc. Use the “Present Value Formula”, which computes how much money yo..

  Require an effective annual interest rate

You are considering a 20-year, $1,000 par value bond. Its coupon rate is 10%, and interest is paid semiannually. If you require an "effective" annual interest rate (not a nominal rate) of 8.32%, how much should you be willing to pay for the bond?

  Assume that the overall cost of debt is the weighted average

Erna Corp. has 6 million shares of common stock outstanding. The current share price is $85, and the book value per share is $8. Erna Corp. also has two bond issues outstanding. The first bond issue has a face value of $65 million, has a coupon rate ..

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