Question

The management of Niagra National Bank is considering an investment in automatic teller machines. The machines...

The management of Niagra National Bank is considering an investment in automatic teller machines. The machines would cost $148,050 and have a useful life of seven years. The bank’s controller has estimated that the automatic teller machines will save the bank $31,500 after taxes during each year of their life (including the depreciation tax shield). The machines will have no salvage value.

Required:

1.Compute the payback period for the proposed investment. (Round your answer to 1 decimal place.)

2.Compute the net present value of the proposed investment assuming an after-tax hurdle rate of: (a) 10 percent, (b) 12 percent, and (c) 14 percent. (Negative amounts should be indicated by a minus sign.)

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

1.

Payback period = Initial Investment / Annual inflow

= $148050 / $31500

= 4.7 years.

2.

Net present value = present value of cash inflow - intital cash outflow

(a)

Net present value = $31500 x Present value Annuity factor (10%,7) - $148050

= $31500 x 4.86842 - $148050

= $153355 - $148050

= $5305.

(b)

Net present value = $31500 x Present value Annuity factor (12%,7) - $148050

= $31500 x 4.56376 - $148050

= $143758 - $148050

= - $4292

(c)

Net present value = $31500 x Present value Annuity factor (14%,7) - $148050

= $31500 x 4.28830 - $148050

= $135081 - $148050

= - $12969.

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 management of Iroquois National Bank is considering an investment in automatic teller machines. The machines...
The management of Iroquois National Bank is considering an investment in automatic teller machines. The machines would cost $129,250 and have a useful life of seven years. The bank’s controller has estimated that the automatic teller machines will save the bank $27,500 after taxes during each year of their life (including the depreciation tax shield). The machines will have no salvage value. 1. Compute the payback period for the proposed investment. in years. 2. Compute the net present value of...
The management of Niagara National Bank is considering an investment in automatic teller machines. The machines...
The management of Niagara National Bank is considering an investment in automatic teller machines. The machines would cost $124,200 and have a useful life of seven years. The bank’s controller has estimated that the automatic teller machines will save the bank $27,000 after taxes during each year of their life (including the depreciation tax shield). The machines will have no salvage value. Which of the following statements are true? (You may select more than one answer. Single click the box...
The National Bank, like most other large banks, found that using automatic teller machines (ATMs) reduces...
The National Bank, like most other large banks, found that using automatic teller machines (ATMs) reduces the cost of routine bank transactions. National installed an ATM in the corporate offices of the Fun Toy Company. The ATM is for the exclusive use of Fun's 615 employees. After several months of operation, a sample of 100 employees revealed the following use of the ATM machine by Fun employees in a month: Number of Times ATM Used Frequency 0 20 1 30...
Question 1 A bank branch has two automatic teller machines (atms) that are accessible at all...
Question 1 A bank branch has two automatic teller machines (atms) that are accessible at all times (even when the branch is closed). Customers arrive at the ATMs at a rate of 30 customers per hour with exponentially distributed interarrival times. Each customer spends an average of 3 minutes to complete the service, where service time is also exponential. When the branch is open, arriving customers refuse to join the ATM queue if it has 3 people or more waiting,...
A firm is considering an investment in a new machine with a price of $16.1 million...
A firm is considering an investment in a new machine with a price of $16.1 million to replace its existing machine. The current machine has a book value of $5.8 million and a market value of $4.5 million. The new machine is expected to have a 4-year life, and the old machine has four years left in which it can be used. If the firm replaces the old machine with the new machine, it expects to save $6.5 million in...
Green Zebra wants to test out alternative energy for its facilities. It is considering an investment...
Green Zebra wants to test out alternative energy for its facilities. It is considering an investment in a new wind-energy tower with a price of $7million to replace its existing natural gas furnace. Today, the current machine has a book value of $4million and could be sold for $3.5 million. The new machine is expected to have three year life, and the old machine has three years remaining in its economic life. Both machines use straight line depreciation to a...
You are evaluating two different silicon wafer milling machines. The Techron I costs $219,000, has a...
You are evaluating two different silicon wafer milling machines. The Techron I costs $219,000, has a three-year life, and has pretax operating costs of $56,000 per year. The Techron II costs $385,000, has a five-year life, and has pretax operating costs of $29,000 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $33,000. If your tax rate is 22 percent and your discount rate is 8 percent, compute...
You are evaluating two different silicon wafer milling machines. The Techron I costs $246,000, has a...
You are evaluating two different silicon wafer milling machines. The Techron I costs $246,000, has a three-year life, and has pretax operating costs of $65,000 per year. The Techron II costs $430,000, has a five-year life, and has pretax operating costs of $38,000 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $42,000. If your tax rate is 22 percent and your discount rate is 8 percent, compute...
You are evaluating two different silicon wafer milling machines. The Techron I costs $228,000, has a...
You are evaluating two different silicon wafer milling machines. The Techron I costs $228,000, has a three-year life, and has pretax operating costs of $59,000 per year. The Techron II costs $400,000, has a five-year life, and has pretax operating costs of $32,000 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $36,000. If your tax rate is 24 percent and your discount rate is 8 percent, compute...
You are evaluating two different silicon wafer milling machines. The Techron I costs $270,000, has a...
You are evaluating two different silicon wafer milling machines. The Techron I costs $270,000, has a three-year life, and has pretax operating costs of $73,000 per year. The Techron II costs $470,000, has a five-year life, and has pretax operating costs of $46,000 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $50,000. If your tax rate is 25 percent and your discount rate is 9 percent, compute...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT