Question

The Scanning Photo Company would like to purchase a new photo scanner for $85,000. The scanner...

The Scanning Photo Company would like to purchase a new photo scanner for $85,000. The scanner is expected to generate a cost savings of $23,000 per year for five years. The company's cost of capital is 8 percent. Factors for an 8 percent interest rate for five years are shown below:

Future Value of $1

1.470

Present Value of $1

0.681

Future Value of an Annuity

5.867

Present Value of an Annuity

3.993

The net present value of the project is (round all calculations to the nearest dollar):

Group of answer choices

$2,193

$6,839

$91,839

$49,941

Smithson Company is considering a $400,000 capital investment project, with the following cash flows:

Year

Cash Flow

1

$ 80,000

2

190,000

3

    90,000

4

40,000

5

    60,000

6

    40,000

Rounded to the nearest month, what is the cash payback period?

Group of answer choices

4 years.

3 years.

3 years, 7 months.

3 years, 5 months.

Tyson Products LLC wants to buy a new machine and has narrowed its options to two choices. Both machines cost $40,000. The following data shows the expected cash inflows from each machine:

Year

Machine #1

Machine #2

1

$60,000

$20,000

2

0

  20,000

3

0

  20,000

When figuring net present value, the company uses the same cost of capital for both machines and both machines have a positive net present value.

Based on this information, which statement is true?

Group of answer choices

Machine # 1 will have a higher net present value than Machine #2.

Machine # 1 will have a lower net present value than Machine #2.

Machine # 1 and Machine #2 will have the same net present values.

Machine # 1 and Machine #2 will have the same internal rates of return.

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
1
Annual cash flows 23000
X Present Value of an Annuity 3.993
Present value of Annual cash flows 91839
Less: Investment cost 85000
Net present value of the project 6839
$6,839 is correct option
2
Year Cash flows Cumulative Cash flows
0 -400000 -400000
1 80000 -320000
2 190000 -130000
3 90000 -40000
4 40000 0
Cash payback period = 4 years
4 years is correct option
3
Cash flows in earlier year will have a higher present value than cash flows occurring in later years.
Machine #1 has a higher cash flow in earlier year and will have a higher net present value.
Machine # 1 will have a higher net present value than Machine #2.
Option A is correct
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The General Hospital Imaging Director wants to purchase a new MRI Scanner. She is evaluating two...
The General Hospital Imaging Director wants to purchase a new MRI Scanner. She is evaluating two manufacturers to see which scanner would work best for her. She also needs to convince her boss that using the resources needed to replace the old MRI scanner is the right decision and then take it to the Capital Equipment Evaluation Committee. Both scanners are very similar in what they can provide clinically, so there is no real advantage there. However, both scanners are...
Longbottom Inc. needs to buy one of two possible production machines. The cost and subsequent cash...
Longbottom Inc. needs to buy one of two possible production machines. The cost and subsequent cash flows generated by each machine are given below: A B C 1 Discount rate 11% 2 3 Year Machine A Machine B 4 0 -55,000 -70,000 5 1 20,000 30,000 6 2 25,000 25,000 7 3 30,000 20,000 8 4 15,000 9 5 10,000 The relevant discount rate is 11% for both projects. Part 1 What is the net present value of machine A?...
Yale Inc. has two independent investment opportunities, each requiring an initial investment of $260,000. The company's...
Yale Inc. has two independent investment opportunities, each requiring an initial investment of $260,000. The company's required rate of return is 10 percent. The cash inflows for each investment are provided below Investment A Investment B Year 1 $140,000 $20,000 Year 2 100,000 40,000 Year 3 60,000 60,000 Year 4 40,000 80,000 Year 5 20,000 160,000 Total inflows $360,000 $360,000 Factors: Present Value of $1 Factors: Present Value of an Annuity (r = 10%) (r = 10%) Year 0 1.0000...
The ABD company is considering the purchase of a new machine to replace an out of...
The ABD company is considering the purchase of a new machine to replace an out of date machine that has a book value of $18000 and can be sold today for $2,000. The old machine is being depreciated on a straightline basis over 4 more years to a book value of $2000 at the end of the fourth year. The old machine generates annual revenues of $105000 and annual expenses of $75000. This machine requires a fixed investment of $5000...
A company would like to invest in a project. The investment cost are 100,000 at the...
A company would like to invest in a project. The investment cost are 100,000 at the beginning of the first year and $120,000 at the beginning of the second year. The project has a 6 year useful life. The cash inflows at the end of year 2 through 6 are $30,000;$40,000; $60,000; $60,000;$60,000, respectively. The cost of capital in year 1 through 6 are: 10%, 10%, 11%,11.5%,11.5%, 12%. -The net present value of this project is $ ??
12. The Danforth Tire Company is considering the purchase of a new machine that would increase...
12. The Danforth Tire Company is considering the purchase of a new machine that would increase the speed of manufacturing and save money. The net cost of this machine is $66,000. The annual cash flows have the following projections. Year Cash Flow 1 $21,000 2 $29,000 3 $36,000 4 $16,000 5 $8,000 a. If the cost of capital is 10 percent, what is the net present value? b. What is the internal rate of return (IRR) c. Should the project...
115 Poe Company is considering the purchase of new equipment costing $80,500. The projected net cash...
115 Poe Company is considering the purchase of new equipment costing $80,500. The projected net cash flows are $35,500 for the first two years and $30,500 for years three and four. The revenue is to be received at the end of each year. The machine has a useful life of 4 years and no salvage value. Poe requires a 10% return on its investments. The present value of $1 and present value of an annuity of $1 for different periods...
The Green Goddess Company is considering the purchase of a new machine that would increase the...
The Green Goddess Company is considering the purchase of a new machine that would increase the speed of manufacturing tires and save money. The net cost of the new machine is $60,000. The annual cash flows have the following projections Year Cash Flow 1 $27,000 2 28,000 3 31,000 4 19,000 5 12,000 a. If the cost of capital is 12 percent, what is the NPV? (Round the final answer to the nearest whole dollar.) NPV           $ b. What...
Alan is considering the purchase of an $11,000 commercial printer, scanner, and fax machine for his...
Alan is considering the purchase of an $11,000 commercial printer, scanner, and fax machine for his sandwich shop. Alan will need to borrow the funds at 7% interest and the printer is expected to carry a salvage value of $600 in year 4. The expected returns generated by the printer are as follows: Year 1 $4000 Year 2 $4200 Year 3 $3800 Year 4 $ 1000 What is the net present value? What is the internal rate of return? Should...
The Sweetwater Candy Company would like to buy a new machine that would automatically “dip” chocolates....
The Sweetwater Candy Company would like to buy a new machine that would automatically “dip” chocolates. The dipping operation is currently done largely by hand. The machine the company is considering costs $230,000. The manufacturer estimates that the machine would be usable for five years but would require the replacement of several key parts at the end of the third year. These parts would cost $10,400, including installation. After five years, the machine could be sold for $7,500. The company...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT