Question

Present Value of Costs

The Aubey Coffee Company is evaluating the within-plant distribution system for its new roasting, grinding, and packing plant. The two alternatives are (1) a conveyor system with a high initial cost, but low annual operating costs, and (2) several forklift trucks, which cost less but have considerably higher operating costs. The decision to construct the plant has already been made, and the choice here will have no effect on the overall revenues of the project. The cost of capital for the plant is 7%, and the projects' expected net costs are listed in the table:

EXPECTED NET COST |
||

Year |
Conveyor |
Forklift |

0 | -$500,000 | -$200,000 |

1 | -120,000 | -160,000 |

2 | -120,000 | -160,000 |

3 | -120,000 | -160,000 |

4 | -120,000 | -160,000 |

5 | -20,000 | -160,000 |

What is the present value of costs of each alternative? Round
your answers to the nearest dollar, if necessary. Enter your
answers as a whole numbers. For example, do not enter 1,000,000 as
1 million.

Method 1 $

Method 2 $

Answer #1

Working:-

Note:- Please check value for year 5 in conveyor option, it was -20,000 and I have solved accordingly, but I think actually it was -120,000 same as the previous year value's, if it is -120,000, the PV would become -992,024

17. Filkins Fabric Company is considering the replacement of its
old, fully depreciated knitting machine. Two new models are
available: Machine 190-3, which has a cost of $220,000, a 3-year
expected life, and after-tax cash flows (labor savings and
depreciation) of $97,000 per year; and Machine 360-6, which has a
cost of $320,000, a 6-year life, and after-tax cash flows of
$93,400 per year. Knitting machine prices are not expected to rise
because inflation will be offset by cheaper components...

Cost of Production Report
Hana Coffee Company roasts and packs coffee beans. The process
begins by placing coffee beans into the Roasting Department. From
the Roasting Department, coffee beans are then transferred to the
Packing Department. The following is a partial work in process
account of the Roasting Department at July 31:
ACCOUNT Work in Process—Roasting
Department
ACCOUNT NO.
Date
Item
Debit
Credit
Balance
Debit
Credit
July
1
Bal., 5,100 units, 3/5 completed
17,544
31
Direct materials, 229,500 units
688,500...

Net present value method
The following data are accumulated by Geddes Company in
evaluating the purchase of $160,000 of equipment, having a
four-year useful life:
Net Income Net Cash Flow
Year 1: $42,000 $82,000
Year 2: 22,500 62,500
Year 3: 10,000 50,000
Year 4: 6,000 46,000
This information has been collected in the Microsoft Excel
Online file. Open the spreadsheet, perform the required analysis,
and input your answers in the questions below.
Open spreadsheet
a) Assuming that the desired rate...

The Management of Cullumber Manufacturing Company is evaluating
two forklift systems to use in its plant that produces the towers
for a windmill power farm. The costs and the cash flows from these
systems are shown below. The company uses a 8 percent discount rate
for all projects.
Year 0
Year 1
Year 2
Year 3
Otis
Forklifts
$-3,107,450
$962,225
$1,373,886
$2,093,497
Craigmore
Forklifts
$-4,139,410
$860,236
$1,775,225
$2,885,110
NPV
Otis forklift
$623,270
Craigmore Forklifts
$469,367
Compute the IRR for each...

A company is evaluating two different computer systems for
purchase. The company uses a MARR of 4% to evaluate investments.
The information for the two systems is in the following table:
A
B
First Cost
$20,000
$10,000
Annual Maintenance
$5,000
$4,000
Annual Cost Savings
$7,000
$5,000
Salvage Value
$1,300
$1,000
Expected Life
3 years
2 years
Based on present worth analysis, what
is the present worth of system A?
Hints:
1. What do you need to consider when evaluating multiple...

1.What is the limitation of using the net present value for
evaluating capital investment alternatives?
a. Ignores the time value of money
b. Does not consider cash flows
c. Cannot be used to compare projects of different size
d. All of the above are limitations of the net present value
method.
2.Which of the following is NOT part of the capital budgeting
process?
a.Project identification
b.Project evaluation
c.Project monitoring
d.All of the above are parts of the capital budgeting
process.

Net present value (NPV)
Evaluating cash flows with the NPV method
The net present value (NPV) rule is considered one of the most
common and preferred criteria that generally lead to good
investment decisions.
Consider this case:
Suppose Cute Camel Woodcraft Company is evaluating a proposed
capital budgeting project (project Beta) that will require an
initial investment of $3,225,000. The project is expected to
generate the following net cash flows:
Year
Cash Flow
Year 1
$300,000
Year 2
$450,000
Year...

Net Present Value Method
The following data are accumulated by Geddes Company in
evaluating the purchase of $160,000 of equipment, having a
four-year useful life:
Net Income
Net Cash Flow
Year 1
$43,000
$73,000
Year 2
26,000
56,000
Year 3
13,000
42,000
Year 4
(1,000)
28,000
Present Value of $1 at Compound
Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
2
0.890
0.826
0.797
0.756
0.694
3
0.840
0.751
0.712
0.658
0.579
4
0.792
0.683...

net present value method The following data are accumulated by
Geddes Company in evaluating the purchase of $150,000 of equipment,
having a four-year useful life: Net Income Net Cash Flow Year 1
$45,500 $83,000 Year 2 20,500 58,000 Year 3 17,000 54,500 Year 4
3,500 41,000 Assuming that the desired rate of return is 20%,
determine the net present value for the proposal. If required,
round to the nearest dollar.

The debits to Work in Process—Roasting Department for Morning
Brew Coffee Company for August, together with information
concerning production, are as follows: Work in process, August 1,
500 pounds, 40% completed $2,370* *Direct materials (500 X $4.1)
$2,050 Conversion (500 X 40% X $1.6) $320 $2,370 Coffee beans added
during August, 16,000 pounds 64,800 Conversion costs during August
26,758 Work in process, August 31, 800 pounds, 30% completed ?
Goods finished during August, 15,700 pounds ? All direct materials
are...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 8 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 3 hours ago