A company is considering whether to purchase a new machine. Machines A and B are available for $80,000 each. Earnings after taxation are as follows: YEAR MACHINE A MACHINE B 1. 24,000 8,000 2. 32,000 24,000 3. 40,000 32,000 4. 24,000 48,000 5. 16,000 32,000 Evaluate the two alternatives using the following: a. payback method b. rate of return on investment method c. net present value method You should use a discount rate of 10%

A company is considering whether to purchase a new machine. Machines A and B are available for $80,000 each. Earnings after taxation are as follows: YEAR MACHINE A MACHINE B 1. 24,000 8,000 2. 32,000 24,000 3. 40,000 32,000 4. 24,000 48,000 5. 16,000 32,000 Evaluate the two alternatives using the following: a. payback method b. rate of return on investment method c. net present value method You should use a discount rate of 10%

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter12: Capital Investment Decisions

Section: Chapter Questions

Problem 52P

See similar textbooks

Similar questions

Assume a company is going to make an investment of $450,000 in a machine and the following are the cash flows that two different products would bring in years one through four. Which of the two options would you choose based on the payback method?
Dogwood Company is considering a capital investment in machinery: (Click the icon to view the data.) 8. Calculate the payback. 9. Calculate the ARR. Round the percentage to two decimal places. 10. Based on your answers to the above questions, should Dogwood invest in the machinery? 8. Calculate the payback. Amount invested Expected annual net cash inflow Payback 1,500,000 24 500,000 3 years 9. Calculate the ARR. Round the percentage to two decimal places. Average annual operating income Average amount invested ARR Data Table Initial investment $ 1,500,000 Residual value 350,000 Expected annual net cash inflows 500,000 Expected useful life 4 years Required rate of return 15%
A company is thinking of investing in one of two potential new products for sale. The projections are as follows: Year Revenue/cost £ (Product A) Revenue/cost £ (Product B)0 (150,000) outlay (150,000) outlay 1 24,000 12,0002 24,000 25,3333 44,000 52,0004 84,000 63,333 Calculate NPV of both products (to 1 d.p.) assuming a discount rate of 7%. Which product should be chosen and why?
Find the profitability index for Oman Air conditioner Company if the initial investment is 4000 OMR and the cash Inflows are as follows: Year 1 =1350 OMR; Year 2 =1400 OMR; Year 3=1450 OMR and Year 4=1500 OMR. Use discount rate as 5%. Select one: a. None b. 1.69 c. 1.83 d. 1.26 e. 1.48
Assume that at the beginning of the year, you purchase an investment for $2,500 that pays $67 annual income. Also assume that the investment's value has decreased to $2,350 at the end of the year. a. What is the rate of return for this investment? b. Is the rate of return a positive or a negative number? Complete this question by entering your answers in the tabs below. Req 1 Req 2 What is the rate of return for this investment? Note: Enter your answer as a percent rounded to 2 decimal places. Input the amount as a positive value. Rate of return % Req 1 Req 2 >
A company is thinking of investing in one of two potential new products for sale. The projections are as follows: Year Revenue/cost £ (Product A) Revenue/cost £ (Product B)0 (150,000) outlay (150,000) outlay 1 24,000 12,0002 24,000 25,3333 44,000 52,0004 84,000 63,333 Calculate the IRR for Product B only using 3% and 15% to 2 d.p.
REQUIRED Calculate the Payback Period of Machine A (expressed in years, months and days). Calculate the Net Present Value of both Calculate the Accounting Rate of Return on initial investment (expressed to two decimal places) of both machines. Calculate the Internal Rate of Return of Machine B (expressed to two decimal places). If the time value of money is taken into account, which machine should be chosen? Why? INFORMATION The directors of Lomax Ltd intend expanding the company and they have the choice of purchasing one of two machines at the end of 2022 viz. Machine A or Machine B. Both machines have a five-year life, with only Machine A having a residual value of R300 000. The annual volume of production of each machine is estimated at 6 000 pallets (comprising 500 bricks each), which can be sold at R520 per pallet. Depreciation is calculated on the machines using the…
Dock Company is considering a capital investment in machinery: E (Click the icon to view the data.) 8. Calculate the payback. 9. Calculate the ARR. Round the percentage to two decimal places. 10. Based on your answers to the above questions, should Dock invest in the machinery? 8. Calculate the payback. Payback years - X Data Table Initial investment $ 1,500,000 Residual value 350,000 Expected annual net cash inflows 500,000 Expected useful life 4 years Required rate of return 9% Print Done
Assume a $40,000 investment and the following cash flows for two alternatives. Year Investment A Investment B 1 $10,00 10,000 2 10,000 20,000 3 15,000 25,000 4 10,000 - 5 20,000 - a. Calculate the payback for investments A and B. (Round your answers to 2 decimal places.) b. Which investment would you select under the payback method? multiple choice 1 Investment A Investment B c. If the inflow in the fifth year for Investment A was $20,000,000 instead of $20,000, would your answer change under the payback method? multiple choice 2 Yes No
A company has two investment possibilities, with the following cash inflows: Investment Year 1 Year 2 Year 3 A $1,000 1,400 1,800 B $1,700 1,700 1,700 If the firm can earn 6 percent in other investments, what is the present value of investments A and B? Use Appendix B and Appendix D to answer the question. Round your answers to the nearest dollar.PV(Investment A): $ __________PV(Investment B): $ __________ If each investment costs $4,000, is the present value of each investment greater than the cost of the investment? The present value of investment A is __less than___ / __greater than__ the cost. The present value of investment B is __less than___ / __greater than__ cost.
The income statement comparison for Rush Delivery Company shows the income statement for the current and prior year. A. Determine the operating income (loss) (dollars) for each year. B. Determine the operating income (percentage) for each year. C. The company made a strategic decision to invest in additional assets in the current year. These amounts are provided. Using the total assets amounts as the investment base, calculate the ROI. Was the decision to invest additional assets in the company successful? Explain. D. Assuming an 8% cost of capital, calculate the RI for each year. Explain how this compares to your findings in part C.
Average Rate of Return Method, Net Present Value Method, and Analysis for a service company The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows: Front-End Loader Year 1 2 3 4 5 Total Year 1 2 3 4 5 6 7 Operating Income 8 9 10 $54,000 54,000 54,000 54,000 54,000 $270,000 0.943 Each project requires an investment of $600,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 10% for purposes of the net present value analysis. Present Value of $1 at Compound Interest 6% 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 10% Net Cash Flow 0.909 0.826 0.751 $172,000 172,000 172,000 172,000 172,000 $860,000 12% 0.893 0.797 0.756 0.712 0.658 0.683 0.636 0.572 0.621 0.567 0.497 0.564 0.507 0.513 0.467 0.424 0.386 0.452 0.404 15% 0.361 0.322 0.870 0.432 0.376 0.327 0.284 0.247 Operating Income…