Question

Samson Industries is deciding whether to automate one phase of its production process. The manufacturing equipment...

Samson
Industries is deciding whether to automate one phase of its production process. The manufacturing equipment has a​ six-year life and will cost
$920,000.00
Projected net cash inflows are as​ follows:
$       260,000 year 1
$       254,000 year 2
$       225,000 year 3
$       214,000 year 4
$       202,000 year 5
$       177,000 year 6

what is the net present value? Should we do this project?

Homework Answers

Answer #1
Year Inflow Discount rate 16% Present Value
Year 1 260000 0.862 224120
Year 2 254000 0.743 188722
Year 3 225000 0.641 144225
Year 4 214000 0.552 118128
Year 5 202000 0.476 96152
Year 6 177000 0.41 72570
843917
Total PV of cash inflow 843917
Total PV of cash outflow 920000
Net PV -76083
Since, NPV is loss, therefore, project should not be accepted
( Note, I have taken disc rate as 16%. In the given question, disc rate is silent)
Therefore, if disc rate is not 16% then change 16 to that per cent.
How to calculate disc rate
For year 1 Disc rate = 1/(1.16)
For year 2 Disc rate = 1/(1.16)^2
I hope this satisfies the answer.
In case of doubt, please comment. Also, it would be great in case you give thumbs up.
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Using NPV to make capital investment decisions Holmes Industries is deciding whether to automate one phase...
Using NPV to make capital investment decisions Holmes Industries is deciding whether to automate one phase of its production process. The manufacturing equipment has a six-year life and will cost $910,000. Projected net cash inflows are as follows: Year 1 $ 262,000 Year 2 254,000 Year 3 222,000 Year 4 215,000 Year 5 200,000 Year 6 175,000 Requirements 1. Compute this project’s NPV using Holmes’s 14% hurdle rate. Should Holmes invest in the equipment? (Compute and provide NPV and write...
RST corporation is deciding whether to automate one phase of its production process. The equipment has...
RST corporation is deciding whether to automate one phase of its production process. The equipment has a six-year life and will cost $ 205,000. Projected net cash inflows from the equipment are as follows: Year 1 $ 60,000 Year 2 $ 50,000 Year 3 $ 55,000 Year 4 $ 50,000 Year 5 $ 47,500 Year 6 $ 45,000 RST corporation hurdle rate is 12%. If RST corporation decides to refurbish the equipment at a cost of $30,000 at the end...
Dupree Industries is deciding whether to automate one phase of its production process. The manufacturing equipment...
Dupree Industries is deciding whether to automate one phase of its production process. The manufacturing equipment has a six-year life and will cost $915,000. Projected net cash inflows are as?follows Year 1 $260,000 Year 2 253,000 Year 3 227,000 Year 4 211,000 Year 5 203,000 Year 6 177,000 Requirments 1. Compute this? project's NPV using duprees 16?% hurdle rate. Should Duprees invest in the? equipment? 2. Dupree could refurbish the equipment at the end of six years for $104,000. The...
The Fox Company is trying to decide whether to invest in automated production equipment as they...
The Fox Company is trying to decide whether to invest in automated production equipment as they are currently operating via manual labor. The following relates to the proposed investment to automate: $500,000 initial cost of the equipment, life of the project 5 years, estimated salvage value at the end of 5 years is $60,000, annual cash revenues $170,000 (received each year), annual cash expenses $40,000 (paid each year). At the end of year three, the company will have to pay...
Elmdale Enterprises is deciding whether to expand its production facilities. Although​ long-term cash flows are difficult...
Elmdale Enterprises is deciding whether to expand its production facilities. Although​ long-term cash flows are difficult to​ estimate, management has projected the following cash flows for the first two years​ (in millions of​ dollars): Year 1 Year 2 Revenues 128.9 151.7 COGS and Operating Expenses​ (other than​ depreciation) 34.5 55.1 Depreciation 26.7 43.1 Increase in Net Working Capital 2.4 8.5 Capital Expenditures 32.9 41.2 Marginal Corporate Tax Rate 35​% 35​% a. What are the incremental earnings for this project for...
Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to...
Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for first two years: year 1 year 2 Revenue $127.7 $169.3 COGS and operating Expenses (other than depreciation) $ 39.2 $ 64.4 Depreciation $ 22.7 $ 37.9 Increase in Net working capital $ 2.2 $ 7.7 Capital Expenditures $ 30.7 $ 41.3 Marginal Corporate Tax rate 35% 35% a. What are the incremental earnings for this...
Discount Rates, Quality, Market Share, Contemporary Manufacturing Environment Sweeney Manufacturing has a plant where the equipment...
Discount Rates, Quality, Market Share, Contemporary Manufacturing Environment Sweeney Manufacturing has a plant where the equipment is essentially worn out. The equipment must be replaced, and Sweeney is considering two competing investment alternatives. The first alternative would replace the worn-out equipment with traditional production equipment; the second alternative uses contemporary technology and has computer-aided design and manufacturing capabilities. The investment and after-tax operating cash flows for each alternative are as follows: Year Traditional Equipment Contemporary Technology    0 $(1,000,000) $(4,000,000)    1...
Elmdale Enterprises is deciding whether to expand its production facilities. Although​ long-term cash flows are difficult...
Elmdale Enterprises is deciding whether to expand its production facilities. Although​ long-term cash flows are difficult to​ estimate, management has projected the following cash flows for the first two years​ (in millions of​ dollars):     Year 1   Year 2 Revenues   120.4   158.9 COGS and Operating Expenses (other than depreciation)    43.9    53.5 Depreciation    27.5 26.8 Increase in Net Working Capital   3.8    8.2 Capital Expenditures   31.7    43.3 Marginal Corporate Tax Rate   35%   35% a. What are the incremental earnings...
Elmdale Enterprises is deciding whether to expand its production facilities. Although​ long-term cash flows are difficult...
Elmdale Enterprises is deciding whether to expand its production facilities. Although​ long-term cash flows are difficult to​ estimate, management has projected the following cash flows for the first two years​ (in millions of​ dollars): Year 1 Year 2 Revenues 120.4 153.2 COGS and Operating Expenses​ (other than​ depreciation) 37.8 69.1 Depreciation 22.8 29.6 Increase in Net Working Capital 3.7 7.6 Capital Expenditures 27.8 39.1 Marginal Corporate Tax Rate 35​% 35​% a. What are the incremental earnings for this project for...
Elmdale Enterprises is deciding whether to expand its production facilities. Although​ long-term cash flows are difficult...
Elmdale Enterprises is deciding whether to expand its production facilities. Although​ long-term cash flows are difficult to​ estimate, management has projected the following cash flows for the first two years​ (in millions of​ dollars): Year 1 Year 2 Revenues 123.1 150.1 COGS and Operating Expenses​ (other than​ depreciation) 32.5 67.3 Depreciation 20.6 38.7 Increase in Net Working Capital 3.9 8.1 Capital Expenditures 28.5 42.7 Marginal Corporate Tax Rate 35​% 35​% a. What are the incremental earnings for this project for...