Reference no: EM131082766
A restaurant operator wishes to choose between two alternative roll-in storage units. Machine A will cost $9,000 and have a trade-in value at the end of its five-year life of $1,500. Machine B will cost $8,500 and at the end of its five-year life will have a trade-in value of $700. As- sume straight-line depreciation.
Investment in the machine will mean that a part-time kitchen worker will not be required, and there will be an annual wage saving of $9,600. The following will be the operating costs, excluding depreciation, for each machine, for each of the five years.
Machine A Machine B Year 12345
Alternative 1
Alternative 2
$24,200 19,800 17,200 10,800
$ 8,400 11,600 17,000 23,000 24,000
8,000
The amount of the investment under either alternative will be $70,000.
Training $800
Maintenance 750 $750 $750 $750 $750
Overhaul Supplies Electricity
300 300 100 100
$550
300 300 300 100 100 100
12345
$700
650 $650 $650 $650 $650
400
500 500 500 500 500 100 100 100 100 100
Income tax rate is 30 percent. For each machine, calculate the NPV by using a 12 percent rate. Ignoring any other considerations, which machine would be the preferable investment?
|
Equipment is depreciated on seven-year macrs schedule
: J. Smythe, Inc., manufactures fine furniture. The company is deciding whether to introduce a new mahogany dining room table set. The set will sell for $6,300, including a set of eight chairs. The equipment is depreciated on a seven-year MACRS schedul..
|
|
What is the estimated production level
: Kaufman Industries has just completed its sales forecasts and its marketing department estimates that the company will sell 44,400 units during the upcoming year. In the past, management has maintained inventories of finished goods at approximately 3..
|
|
Manufacturers of fine zithers
: You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. Assume the company has other profitable projects. MACRS schedule. What is the NPV of the projec..
|
|
Concept to encompass surf lifestyle for the home
: With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor la..
|
|
Which machine would be preferable investment
: A restaurant operator wishes to choose between two alternative roll-in storage units. Machine A will cost $9,000 and have a trade-in value at the end of its five-year life of $1,500. Machine B will cost $8,500 and at the end of its five-year life wil..
|
|
Common stock dividend to grow at constant
: AWM Corporation expects its common stock dividend to grow at a constant 5 percent for the foreseeable future. The company recently paid a $4.00 dividend. If the required rate of return on the company's stock is 11 percent, what is the value (price) o..
|
|
Affect the effectiveness of voluntary cooperative methods
: What are the characteristics of the Lindahl Equilibrium for cooperative supply of a pure public good? How does the free-rider problem affect the effectiveness of voluntary cooperative methods in achieving efficient levels of output for pure public go..
|
|
Monthly charge cookie cutter should pay for lockbox system
: It takes Cookie Cutter Modular Homes, Inc., about six days to receive and deposit checks from customers. Cookie Cutter’s management is considering a lockbox system to reduce the firm’s collection times. What is the maximum monthly charge Cookie Cutte..
|
|
Determine the expected return on the stock
: After determining the expected return on its stock, XYZ ventures decides to sell the entire corporation with expected earnings estimated to be $8,000,000. With 200,000 shares outstanding and preferred equity at $4,500,000. Determine the liquidation v..
|