Question

Cowboy Recording Studio is considering the investment of $143,400 in new recording equipment. It is estimated that the new equipment will generate additional cash flow of $21,000 per year for each year of its 7-year life and will have a salvage value of $13,500 at the end of its life. Cowboys’ financial managers estimate that the firm’s cost of capital is 8%. Use Table 6-4 and Table 6-5. (Use appropriate factor(s) from the tables provided. Round the PV factors to 4 decimals.)

**Required:**

- Calculate the net present value of the investment.
- Calculate the present value ratio of the investment.
- What is the internal rate of return of this investment, relative to the cost of capital?
- Calculate the payback period of the investment.

Answer #1

Cowboy Recording Studio is considering the investment of
$134,700 in a new recording equipment. It is estimated that the new
equipment will generate additional cash flow of $19,500 per year
for each year of its 7-year life and will have a salvage value of
$13,000 at the end of its life. Cowboys' financial managers
estimate that the firm’s cost of capital is 8%. Use Table 6-4and
Table 6-5. (Use appropriate factor(s) from the tables
provided. Round the PV factors to...

XYZ Company is considering the purchase of a new piece of equipment and
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Initial investment ................ ?
Annual cost savings ............... $20,000
Salvage value in 6 years .......... 30% of original cost of the equipment
Repair in 4 years ................. $21,000
Cost of capital ................... 10%
Life of project ................... 6 years
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Remaining life 8 years Salvage value in 8 years $4,592 Current
salvage value $10,600 Annual cash operating costs $29,600 Salvage
value in 8 years $0 Annual cash operating costs $36,000
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initial investment ............................ $180,000
life of new equipment ......................... 10 years
salvage value of new equipment in 10 year ..... $ 20,000
cost of capital ............................... 10%
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Tulsa Company is considering investing in new bottling equipment
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Hinda Company has gathered the following information related
to an investment in new equipment:
annual net cash inflows ....................... $ 46,000
initial investment ............................ ???
life of new equipment ......................... 10 years
working capital needed now .................... $ 37,000
cost of capital ............................... 10%
income tax rate ............................... 30%
Assume the working capital needed now will be released for
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