Question

The management of Byrge Corporation is investigating buying a small used aircraft to use in making...

The management of Byrge Corporation is investigating buying a small used aircraft to use in making airborne inspections of its above-ground pipelines. The aircraft would have a useful life of 6 years. The company uses a discount rate of 20% in its capital budgeting. The net present value of the investment, excluding the intangible benefits, is −$474,420. (Ignore income taxes.)

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided.

How large would the annual intangible benefit have to be to make the investment in the aircraft financially attractive? (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

Multiple Choice

  • $474,420

  • $142,640

  • $79,070

  • $94,884

Homework Answers

Answer #1
Annual intangible benefit present value should be equal to $474420
so that project will be accepted.
Annual intangible benefit can be calculated using following formula
Present Value Of An Annuity
= C*[1-(1+i)^-n]/i]
Where,
C= Cash Flow per period
i = interest rate per period
n=number of period
$474420= C[ 1-(1+0.2)^-6 /0.2]
474420= C[ 1-(1.2)^-6 /0.2]
474420= C[ (0.6651) ] /0.2
C =$142640
Correct Answer =$142640
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
The management of Byrge Corporation is investigating buying a small used aircraft to use in making...
The management of Byrge Corporation is investigating buying a small used aircraft to use in making airborne inspections of its above-ground pipelines. The aircraft would have a useful life of 4 years. The company uses a discount rate of 10% in its capital budgeting. The net present value of the investment, excluding the intangible benefits, is −$316,880. (Ignore income taxes.) Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided. How...
Jojola Corporation is investigating buying a small used aircraft for the use of its executives. The...
Jojola Corporation is investigating buying a small used aircraft for the use of its executives. The aircraft would have a useful life of 5 years. The company uses a discount rate of 13% in its capital budgeting. The net present value of the initial investment and the annual operating cash cost is –$439,238. Management is having difficulty estimating the annual benefit of having the aircraft and estimating the salvage value of the aircraft. (Ignore income taxes.) See separate Exhibit 13B-1...
Croce, Inc., is investigating an investment in equipment that would have a useful life of 9...
Croce, Inc., is investigating an investment in equipment that would have a useful life of 9 years. The company uses a discount rate of 16% in its capital budgeting. The net present value of the investment, excluding the salvage value, is −$578,586. (Ignore income taxes.) Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided. How large would the salvage value of the equipment have to be to make the investment...
quiz 3 Devon Corporation uses a discount rate of 8% in its capital budgeting. Partial analysis...
quiz 3 Devon Corporation uses a discount rate of 8% in its capital budgeting. Partial analysis of an investment in automated equipment with a useful life of 6 years has thus far yielded a net present value of ?$497,341. This analysis did not include any estimates of the intangible benefits of automating this process nor did it include any estimate of the salvage value of the equipment. (Ignore income taxes.) Click here to view Exhibit 13B-1 and Exhibit 13B-2 to...
TB Problem Qu. 13-171 Devon Corporation uses a discount... Devon Corporation uses a discount rate of...
TB Problem Qu. 13-171 Devon Corporation uses a discount... Devon Corporation uses a discount rate of 8% in its capital budgeting. Partial analysis of an investment in automated equipment with a useful life of 8 years has thus far yielded a net present value of −$498,941. This analysis did not include any estimates of the intangible benefits of automating this process nor did it include any estimate of the salvage value of the equipment. (Ignore income taxes.) Click here to...
Assume that a company is considering buying a new piece of equipment for $280,000 that would...
Assume that a company is considering buying a new piece of equipment for $280,000 that would have a useful life of five years and a salvage value of $30,000. The equipment would generate the following estimated annual revenues and expenses: Revenues $ 120,000 Less operating expenses: Commissions $ 15,000 Insurance 5,000 Depreciation 50,000 Maintenance 30,000 100,000 Net operating income $ 20,000 Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided....
The management of Penfold Corporation is considering the purchase of a machine that would cost $300,000,...
The management of Penfold Corporation is considering the purchase of a machine that would cost $300,000, would last for 5 years, and would have no salvage value. The machine would reduce labor and other costs by $70,000 per year. The company requires a minimum pretax return of 12% on all investment projects. Click here to view Exhibit 13B-1 and Exhibit 13B-2 to determine the appropriate discount factor(s) using the tables provided. The net present value of the proposed project is...
The management of an amusement park is considering purchasing a new ride for $50,000 that would...
The management of an amusement park is considering purchasing a new ride for $50,000 that would have a useful life of 10 years and a salvage value of $5,000. The ride would require annual operating costs of $33,000 throughout its useful life. The company's discount rate is 8%. Management is unsure about how much additional ticket revenue the new ride would generate-particularly because customers pay a flat fee when they enter the park that entitles them to unlimited rides. Hopefully,...
Lukow Products is investigating the purchase of a piece of automated equipment that will save $160,000...
Lukow Products is investigating the purchase of a piece of automated equipment that will save $160,000 each year in direct labor and inventory carrying costs. This equipment costs $870,000 and is expected to have a 7-year useful life with no salvage value. The company’s required rate of return is 9% on all equipment purchases. Management anticipates that this equipment will provide intangible benefits such as greater flexibility and higher-quality output that will result in additional future cash inflows. Click here...
1. The management of Opray Corporation is considering the purchase of a machine that would cost...
1. The management of Opray Corporation is considering the purchase of a machine that would cost $360,000, would last for 7 years, and would have no salvage value. The machine would reduce labor and other costs by $78,000 per year. The company requires a minimum pretax return of 11% on all investment projects. (Ignore income taxes.) Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided. The net present value of...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT