Bruno corporation is involved in the business of injection molding

W6 Assignment “Application Problems 6”

•Page 539: Brief Exercises 12-1, 12-4, 12-5, 12-6

BE12-1 Rihanna Company is considering purchasing new equipment for $450,000. It is expected that the equipment will produce net annual cash flows of $60,000 over its 10-year useful life. Annual depreciation will be $45,000. Compute the cash payback period.

BE12-4 Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $200,000 and has an estimated useful life of 8 years with zero salvage value. Management estimates that the new bottling machine will provide net annual cash flows of $34,000. Management also believes that the new bottling machine will save the company money because it is expected to be more reliable than other machines, and thus will reduce downtime. How much would the reduction in downtime have to be worth in order for the project to be acceptable? Assume a discount rate of 9%. (Hint: Calculate the net present value.)

BE12-5 McKnight Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $400,000, has an expected useful life of 10 years, a salvage value of zero, and is expected to increase net annual cash flows by $70,000. Project B will cost $310,000, has an expected useful life of 10 years, a salvage value of zero, and is expected to increase net annual cash flows by $55,000. A discount rate of 9% is appropriate for both projects. Compute the net present value and profitability index of each project. Which project should be accepted?

BE12-6 Quillen Company is performing a post-audit of a project completed one year ago. The initial estimates were that the project would cost $250,000, would have a useful life of 9 years, zero salvage value, and would result in net annual cash flows of $46,000 per year. Now that the investment has been in operation for 1 year, revised figures indicate that it actually cost $260,000, will have a total useful life of 11 years, and will produce net annual cash flows of $39,000 per year. Evaluate the success of the project. Assume a discount rate of 10%.

•Pages 541-542: Exercise 12-5

E12-5 Bruno Corporation is involved in the business of injection molding of plastics. It is considering the purchase of a new computer-aided design and manufacturing machine for $430,000. The company believes that with this new machine it will improve productivity and increase quality, resulting in an increase in net annual cash flows of $101,000 for the next 6 years. Management requires a 10% rate of return on all new investments.

Instructions: Calculate the internal rate of return on this new machine. Should the investment be accepted?

W6

As

signment “Application Problems 6

”

•Page 539: Brief Exercises 12

-

1, 12

-

4, 12

-

5, 12

-

6

BE12

-

1

Rihanna Company is considering purchasing new

equipment for $450,000. It is

expected that the

equipment will produce net annual cash flo

ws of $60,000 over its 10

-

year

useful life. Annual

depreciation will be $45,000. Compute the cash payback perio

d.

BE12

-

4

Caine Bottling Corporation is considering the purchase of a new bottlin

g machine.

The machine

would cost $200,000 and has an estimated us

eful life of 8 years with zero

salvage value. Management

estimates that the new bot

tling machine will provide net

annual cash flows of $34,000. Management

also believes that the new bottl

ing machine

will save the company money because it is expected

to be

more reliable than other

machines, and thus will reduce downtime. How much w

ould the reduction in

downtime

have to be worth in order for the project to be acceptable? Assume a discount

rate of 9%.

(Hint: Calculate the net present value.)

BE12

-

5

McKnight Company is

considering two differe

nt, mutually exclusive capital

expenditure

proposals. Project A will cost $400,000, has an expec

ted useful life of 10 years, a

salvage value of zero,

and is expected to increase net annual ca

sh flows by $70,000. Project B

will co

st $310,000, has an

expected useful life of 10 years, a

salvage value of zero, and is

expected to increase net annual cash

flows by $55,000. A disc

ount rate of 9% is appropriate

for both projects. Compute the net present value

and profit

ability index of each project.

Which project should be accepted?

BE12

-

6

Quillen Company is performing a post

-

audit of a p

roject completed one year ago.

The initial

estimates were that the project would cost $250,00

0, would have a

useful life of

9 years, zero salvage

value, a

nd would result in net annual c

ash flows of $46,000 per year.

Now that the investment has been

in operation for 1 year, re

vised figures indicate that it

actually cost $260,000, will have a total useful life

of 11 year

s, and will produce net annual

cash

flows of $39,000 per year. Evaluate the success of the

p

roject. Assume a discount rate

of 10%.

•Pages 541

-

542: Exercise 12

-

5

E12

-

5

Bruno Corporation is involved in the business of inject

ion molding of plastics. It is

considering the

purchase of a new computer

-

aided design

and manufacturing machine for

$430,000. The company

believes that with this new machine it

will improve productivity

and increase quality, resulting in an

increase in net a

nnual

cash flows of $101,000 for th

e

next 6 years. Management requires a 10% rate of

return on all new investments.

Instructions:

Calculate the internal rate of return on this new mac

hine. Should the investment be

accepted?

W6 Assignment “Application Problems 6”

•Page 539: Brief Exercises 12-1, 12-4, 12-5, 12-6

BE12-1 Rihanna Company is considering purchasing new equipment for $450,000. It is expected that the

equipment will produce net annual cash flows of $60,000 over its 10-year useful life. Annual

depreciation will be $45,000. Compute the cash payback period.

BE12-4 Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine

would cost $200,000 and has an estimated useful life of 8 years with zero salvage value. Management

estimates that the new bottling machine will provide net annual cash flows of $34,000. Management

also believes that the new bottling machine will save the company money because it is expected to be

more reliable than other machines, and thus will reduce downtime. How much would the reduction in

downtime have to be worth in order for the project to be acceptable? Assume a discount rate of 9%.

(Hint: Calculate the net present value.)

BE12-5 McKnight Company is considering two different, mutually exclusive capital expenditure

proposals. Project A will cost $400,000, has an expected useful life of 10 years, a salvage value of zero,

and is expected to increase net annual cash flows by $70,000. Project B will cost $310,000, has an

expected useful life of 10 years, a salvage value of zero, and is expected to increase net annual cash

flows by $55,000. A discount rate of 9% is appropriate for both projects. Compute the net present value

and profitability index of each project. Which project should be accepted?

BE12-6 Quillen Company is performing a post-audit of a project completed one year ago. The initial

estimates were that the project would cost $250,000, would have a useful life of 9 years, zero salvage

value, and would result in net annual cash flows of $46,000 per year. Now that the investment has been

in operation for 1 year, revised figures indicate that it actually cost $260,000, will have a total useful life

of 11 years, and will produce net annual cash flows of $39,000 per year. Evaluate the success of the

project. Assume a discount rate of 10%.

•Pages 541-542: Exercise 12-5

E12-5 Bruno Corporation is involved in the business of injection molding of plastics. It is considering the

purchase of a new computer-aided design and manufacturing machine for $430,000. The company

believes that with this new machine it will improve productivity and increase quality, resulting in an

increase in net annual cash flows of $101,000 for the next 6 years. Management requires a 10% rate of

return on all new investments.

Instructions: Calculate the internal rate of return on this new machine. Should the investment be

accepted?