A firm is considering two mutually-exclusive investment proj…
A firm is considering two mutually-exclusive investment projects, with the following net cash flows: n Project A Project B 0 −$12,500 −$20,500 1 $6,400 −$3,000 2 $4,400 $18,000 3 $7,000 $13,000 IRR 20% 13% At an MARR of 12%, which project should be selected on the basis of the IRR criterion? [which]
Read DetailsA new manual pick-and-place machine is one alternative to im…
A new manual pick-and-place machine is one alternative to improve both quality and productivity of an existing PCB assembly process. The machine costs $45,000. Operating and maintenance costs start at $5,000 the first year and increase by $2,000 each year after that. The machine will have a life of 5 years, with a salvage value of $9,000 at the end of 5 years. The company’s MARR is 8%. The capital recovery cost of the machine is $9,736. (Round answers to nearest dollar.) What are the annual equivalent operating and maintenance costs for the machine? $[aoc] What is the annual equivalent cost for the machine? $[aec]
Read DetailsThree years ago, the Lucky Strike mine in Arizona was purcha…
Three years ago, the Lucky Strike mine in Arizona was purchased for $80,000. At the time of purchase, the mine contained 1,000 tons of mica. Production, sales, and taxable income for the first three years were: Year Extracted Mica (tons) Sales ($) Taxable Income ($) 1 60 18,700 20,000 2 200 60,000 27,000 3 120 57,950 40,000 The cost depletion amount for Year 3 was $9,600. (Round answers to nearest dollar.) Determine the percentage depletion amount for Year 3. $[p3] What depletion allowance should Lucky Strike take for Year 3? $[t3]
Read DetailsA local mining company purchased a new ore grading unit for…
A local mining company purchased a new ore grading unit for $80,000. The unit has an anticipated life of 10 years and a salvage value of $10,000. Using straight-line (SL) depreciation, What is the depreciation rate for year 4? [sr4] (two decimals) What is the depreciation charge for year 4? $[sd4] (nearest dollar) What is the book value at the end of year 4? $[sb4] (nearest dollar)
Read DetailsA large multi-national technology company recently issued $7…
A large multi-national technology company recently issued $7 billion in bonds, at four different maturities (tranches), to help fund the takeover of another company. When the bonds were sold, an investor purchased a 10-year, $10,000 bond at face value with a coupon rate of 8% per year, payable quarterly. How much money will the investor receive 3 months after purchasing the bond? $[a] (round to nearest dollar) If the investor holds the bond to maturity, what annual rate of return will they realize? [b]% (round to two decimal places)
Read DetailsRx, Ltd. sold its prescription drug business to Goliath, Inc…
Rx, Ltd. sold its prescription drug business to Goliath, Inc. for $3.1 billion. The income from product sales is $2 billion per year, and net profit is 20% of sales. What annual rate of return will Goliath make over a 9-year planning horizon? [ror]
Read DetailsA company plans to spend $3,700,000 on equipment that will b…
A company plans to spend $3,700,000 on equipment that will be depreciated using the MACRS method and a 5-year recovery period. The company uses a 6-year study period for these types of purchases and plans to keep the equipment indefinitely. Gross Income, Operating Expenses and the Depreciation Charge are given below for Year 1, with the Cash Flow After Taxes for the rest of the study period. The company’s combined marginal tax rate is 39%. Year GI OE CFBT Dt TI Taxes CFAT 0 −$3,700,000 1 $900,000 $50,000 (a) $740,000 (b) (c) (d) 2 $1,041,260 3 $917,556 4 $867,734 5 $928,734 6 $906,617 Round to nearest dollar. For Year 1, what is the cash flow before taxes, CFBT? $[cb] For Year 1, what is the taxable income, TI? $[ti] For Year 1, what is the amount of taxes, Taxes? $[x] For Year 1, what is the cash flow after taxes, CFAT? $[ca] What is the after-tax Rate of Return over the study period? [ror]% (one decimal) If the company’s MARR is 10%, should they invest in this equipment, YES or NO? [in]
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