Swifty Hammocks is considering the purchase of a new weaving machine to prepare fabric for its hammocks. The machine under consideration costs $154,434 and will save the company $20,000 in direct labor costs. It is expected to last 10 years. Click here to view the factor table. (a) Calculate the internal rate of return on the weaving machine. (Round answer to 0 decimal place, e.g. 15.) Internal rate of return (b) If Swifty uses a 7% hurdle rate, should the company invest in the machine?

Swifty Hammocks is considering the purchase of a new weaving machine to prepare fabric for its hammocks. The machine under consideration costs $154,434 and will save the company $20,000 in direct labor costs. It is expected to last 10 years. Click here to view the factor table. (a) Calculate the internal rate of return on the weaving machine. (Round answer to 0 decimal place, e.g. 15.) Internal rate of return (b) If Swifty uses a 7% hurdle rate, should the company invest in the machine?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 17EB: Caduceus Company is considering the purchase of a new piece of factory equipment that will cost...

See similar textbooks

Similar questions

Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $420,000 and will generate $95,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further Instructions on internal rate of return in Excel, see Appendix C.
Shonda & Shonda is a company that does land surveys and engineering consulting. They have an opportunity to purchase new computer equipment that will allow them to render their drawings and surveys much more quickly. The new equipment will cost them an additional $1.200 per month, but they will be able to increase their sales by 10% per year. Their current annual cost and break-even figures are as follows: A. What will be the impact on the break-even point if Shonda & Shonda purchases the new computer? B. What will be the impact on net operating income if Shonda & Shonda purchases the new computer? C. What would be your recommendation to Shonda & Shonda regarding this purchase?
Thornton Painting Company is considering whether to purchase a new spray paint machine that costs $5,400. The machine is expected to save labor, increasing net income by $810 per year. The effective life of the machine is 15 years according to the manufacturer’s estimate. Required Determine the unadjusted rate of return based on the average cost of the investment. (Enter your answer as a whole percentage (e.g. 0.55 should be entered as 55).)
Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $48,000 and a remaining useful life of five years. It can be sold now for $58,000. Variable manufacturing costs are $47,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is five years. Purchase price Variable manufacturing costs per year (a) Compute the income increase or decrease from replacing the old machine with Machine A. (b) Compute the income increase or decrease from replacing the old machine with Machine B. (c) Should Lopez keep or replace its old machine? (d) If the machine should be replaced, which new machine should Lopez purchase? Req A Complete this question by entering your answers in the tabs below. Req B Revenues Machine A: Keep or Replace Analysis Compute the income increase or decrease from replacing the old machine with Machine A. (Amounts to be deducted…
Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $48,000 and a remaining useful life of four years. It can be sold now for $58,000. Variable manufacturing costs are $48,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is four years. Purchase price Variable manufacturing costs per year (a) Compute the income increase or decrease from replacing the old machine with Machine A. (b) Compute the income increase or decrease from replacing the old machine with Machine B. (c) Should Lopez keep or replace its old machine? (d) if the machine should be replaced, which new machine should Lopez purchase? Req A Complete this question by entering your answers in the tabs below. Req B Revenues Machine A: Keep or Replace Analysis Compute the income increase or decrease from replacing the old machine with Machine A. (Amounts to be deducted…
Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $48,000 and a remaining useful life of four years. It can be sold now for $58,000. Variable manufacturing costs are $48,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is four years. Purchase price Variable manufacturing costs per year (a) Compute the income increase or decrease from replacing the old machine with Machine A. (b) Compute the income increase or decrease from replacing the old machine with Machine B. (c) Should Lopez keep or replace its old machine? (d) If the machine should be replaced, which new machine should Lopez purchase? Req A Complete this question by entering your answers in the tabs below. Req B Req C and D Compute the income increase or decrease from replacing the old machine with Machine B. (Amounts to be deducted should be indicated with a minus…
Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $46,000 and a remaining useful life of five years. It can be sold now for $56,000. Variable manufacturing costs are $47,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is five years. Purchase price Variable manufacturing costs per year (a) Compute the income increase or decrease from replacing the old machine with Machine A. (b) Compute the income increase or decrease from replacing the old machine with Machine B. (c) Should Lopez keep or replace its old machine? (d) If the machine should be replaced, which new machine should Lopez purchase? Req A Complete this question by entering your answers in the tabs below. Req B Machine A: Keep or Replace Analysis Revenues Sale of existing machine Costs Req C and D Compute the income increase or decrease from replacing the old machine…
Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $46,000 and a remaining useful life of four years. It can be sold now for $56,000. Variable manufacturing costs are $50,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is four years. Purchase price Variable manufacturing costs per year (a) Compute the income increase or decrease from replacing the old machine with Machine A. (b) Compute the income increase or decrease from replacing the old machine with Machine B. (c) Should Lopez keep or replace its old machine? (d) If the machine should be replaced, which new machine should Lopez purchase? Req B Complete this question by entering your answers in the tabs below. Req A Compute the income increase or decrease from replacing the old machine with Machine A. Note: Amounts to be deducted should be indicated with a minus sign. Req…
The plant manager of RecycleNow! Corp is considering a new pulverizer for one of its recycling sorting facilities. The new machine costs $35,755 making it eligible for the company’s 3-year payback rule. The new machine is expected to produce incremental after-tax profits of $13,150/year. A) What is the payback period? (Carry your answer to 1 decimal place.) B) Should RecycleNow! buy the new pulverizer?
A factory wants to invest in a washing machine which will reduce their monthly expenses. The asset which they wish to purchase costs $10,000 and has a lifespan of 18 years. If the interest rate is 9%, compounded annually, how much must be saved every month to recover the cost of the capital invested in? A) $92.18 B) $95.18 C) $99.18 D) $91.18
A company is going to buy a new machine for manufacturing its products. Three machines are available. Data is as follows: Money is worth 17% before taxes to the company. Which machine should be chosen?Use Future Worth Method
A company is going to buy a new machine for manufacturing its products. Three machines are available. Data is as follows: Money is worth 17% before taxes to the company. Which machine should be chosen?Use Present Worth Method