Reference no: EM132597988
Greenland Manufacturing Co. produces lawnmowers. After five years, the once successful line is no longer selling well, so the company is considering production of an improved line of machines incorporating solar technology. This can be done by buying needed production equipment. There is a six-month manufacturing, delivery, setup, and training delay before the equipment will be ready for production. The company wants to start producing the new line of lawn mowers in January next year to be ready for peak selling season. Two options are available - lease or buy.
Buy Option - The entire purchase price of the production equipment is $900K and is due at the time of the order. The cost of capital for this purchase is 7%. Assume: (1) the equipment has no residual value at the end of the fifth year and (2) there are no taxes.
Lease Option - The total lease cost is $900K. A $190K deposit is due at the time of the order. The remaining portion of the first year's lease payment ($90K) is due in January next year. The other four annual lease payments ($155K each) are due in January of production years 2, 3, 4, and 5. The cost of capital for leasing is 19%. Assume no taxes.
Revenue from sales of the new line of solar powered mowers is expected to be:
Year 1 - $900,000
Year 2 - $650,000
Year 3 - $317,000
Year 4 - $235,000
Year 5 - $125,000
Question 1. Calculate the net present value of both the new purchase option and the lease option. Show all work. Determine the best option for Jones and justify your answer.
Question 2. Calculate IRR for each option.
Question 3. Assuming projected inflows and outflows are accurate, under what conditions can Jones expect to see a return equal to IRR? Is this realistic?
|
What amount Gum report as estimated warranty liability
: What amount should Gum report as estimated warranty liability on its December 31, 2016 balance sheet
|
|
How would rank the projects
: IRR of 10%; the second has a NPV of $180K and an IRR of $12%; the third has a NPV of 220K and an IRR of 9%. How would you rank the projects? Explain
|
|
Describe the atmospheric conditions
: Describe the atmospheric conditions typically associated with that type of storm
|
|
Changes in the integrity of desmosomes
: 1. The upper layers of the skin constantly slough off. Predict the changes in the integrity of desmosomes as skin cells age (and move closer to the skin's surfa
|
|
What conditions can Jones expect to see return equal to IRR
: Assuming projected inflows and outflows are accurate, under what conditions can Jones expect to see a return equal to IRR? Is this realistic?
|
|
Describe early development
: Describe early development, including cleavage, the formation of the blastula, gastrulation, and organogenesis.
|
|
What does information tell about company net profit
: What does this information tell you about the company's net profit margin and total asset turnover? Provide values to support your assessment.
|
|
Question - Calculating Fees on a Loan Commitment
: Question - Calculating Fees on a Loan Commitment - The total loan available was $1,000,000, of which you took down $750,000
|
|
Why not all procedure are done on gel in western
: Why not all procedure are done on gel in western blot technique and nitrocellulose membrane is used in between the procedure?
|