1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Nata [24]
3 years ago
8

Hunt Inc. intends to invest in one of two competing types of computer-aided manufacturing equipment: CAM X and CAM Y. Both CAM X

and CAM Y models have a project life of 10 years. The purchase price of the CAM X model is $3,600,000, and it has a net annual after-tax cash inflow of $900,000. The CAM Y model is more expensive, selling for $4,200,000, but it will produce a net annual after-tax cash inflow of $1,050,000. The cost of capital for the company is 10%.
Required:
Calculate the NPV for each project.
Business
1 answer:
timofeeve [1]3 years ago
7 0

Answer:

NPV of CAM X = $1,930,110.40

NPV of CAM Y = $2,251,795.46

Explanation:

The NPV for each project can be calculated using the following steps:

<u>Step 1: Calculation of present value (PV) for each project</u>

The PV for each project can be calculated using the formula for calculating the present value of an ordinary annuity as follows:

PV of a project = P * [{1 - [1 / (1 + r)]^n} / r] …………………………………. (1)

Where;

<u>For CAM X</u>

P = Net annual after-tax cash inflow = $900,000

r = Cost of capital or interest rate = 10%, or 0.10

n = number of project life = 10

Substitute the values into equation (1) to have:

PV of CAM X = $900,000 * [{1 - [1 / (1 + 0.10)]^10} / 0.10]

PV of CAM X = $900,000 * 6.14456710570468

PV of CAM X = $5,530,110.40

<u>For CAM Y</u>

P = Net annual after-tax cash inflow = $1,050,000

r = Cost of capital or interest rate = 10%, or 0.10

n = number of project life = 10

Substitute the values into equation (1) to have:

PV of CAM Y = $1,050,000 * [{1 - [1 / (1 + 0.10)]^10} / 0.10]

PV of CAM Y = $1,050,000 * 6.14456710570468

PV of CAM Y = $6,451,795.46

<u>Step 2: Calculation of net present value (NPV) for each project</u>

The NPV for each project can be calculated using the following formula:

NPV of each project = PV of each equipment - Purchase price of each equipment ........ (2)

Using equation (2), we have:

NPV of CAM X =  PV of CAM X - Purchase price of CAM X = $5,530,110.40 - $3,600,000 = $1,930,110.40

NPV of CAM Y = PV of CAM Y - Purchase price of CAM Y = $6,451,795.46 - $4,200,000 = $2,251,795.46

Additional Note:

Although this not part of the requirement of the question, but note that the final decision is that since the positive NPV of $2,251,795.46 for CAM Y is gereater than the positive NPV of $1,930,110.40 for CAM X, Hunt Inc. will choose to invest in CAM Y.

You might be interested in
______ consists of a set of techniques and principles for systematically collecting, recording, analyzing, and interpreting data
Mademuasel [1]

Answer:

The correct answer is option A.

Explanation:

Marketing research refers to the set of techniques and principles for systematically collecting, recording, analyzing, and interpreting data that can aid decision-makers involved in marketing goods, services, or ideas.

It involves a number of steps such as defining the objectives and research needs, designing the research, collection of data.  

Marketing research is helpful in making decisions related to marketing goods, services and ideas.

5 0
3 years ago
Universal Containers (UC) is migrating from a legacy portal to a new Community. UC needs to stand up the new Community immediate
Juli2301 [7.4K]

Answer:

The answer for the Community template that the Community Cloud consultant should recommend is option c) Customers Account Portal

Explanation:

The Customer Account Portal template improves customer relationships and decreases service costs. The template provides features that make it easy for customers to see and pay invoices, update their account information, and search your knowledge base for answers.

The Customers Account Portal is the best option since Universal Containers (UC) is migrating from a legacy portal to a new Community and needs to stand up to the needs of the new Community immediately where users can ask questions and provide answers.

3 0
3 years ago
What does a low asset turnover compared to the industry imply? The investment in assets may be too high. Sales are higher than a
Finger [1]

Answer:

A low asset turnover compared to the industry implies Net income is low relative to the investment in assets.

Explanation:

Asset turnover is the ratio of total sales or revenue to average assets. It is a measure used to gauge how effectively companies are using their assets to generate sales.

Higher turnover ratios mean the company is using its assets more efficiently. Lower ratios mean that the company isn't using its assets efficiently and most likely have management or production problems.

The asset turnover ratio measures the value of a company's sales or revenues relative to the value of its assets

If a company has a low asset turnover ratio, it indicates it is not efficiently using its assets to generate sales.

3 0
3 years ago
Trevorrow Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets
a_sh-v [17]

Answer:

Activity Variance for net operating Income  =   $ 10598 Unfavorable  

Explanation:

Activity Variance for net operating Income  =   $ 10598 Unfavorable      

                                     Actual                           Budgeted

                                   6600 Units                     6600 Units

Revenue                            $194,472                $   185,460                            

       

Direct labor                       $16,145                     $ 16500

Direct materials                 $67,059                  $ 68640

Manufacturing overhead   $45,587                   $ 45620

Selling and

<u>Administrative expenses     $25,363                $ 24980</u>

Total Expenses                    $ 154154                    155740

Net Op. Income                     $ 40,318                 $ 29,720              

 

The activity variance for net operating income =  Actual- budget=    

                                                            = $ 40,318   - $ 29,720

                                                            =   $ 10598 Unfavorable                        

3 0
3 years ago
The opportunity cost of an item is?​
Tanzania [10]

Answer:

The idea behind opportunity cost is that the cost of one item is the lost opportunity to do or consume something else; in short, opportunity cost is the value of the next best alternative. Click to see full answer Herein, what is opportunity cost give example? Opportunity cost is the profit lost when one alternative is selected over another.

Explanation:

3 0
2 years ago
Other questions:
  • A broker's records must be available for inspection during business hours. who inspects the records?
    12·1 answer
  • Tablet Tailors sells tablet PCs combined with Internet service, which permits the tablet to connect to the Internet anywhere and
    9·1 answer
  • What will maximize the amount of interest you earn
    9·1 answer
  • What is the tax on an annual salary of 66000 dollars​
    13·1 answer
  • Gala and Hoyt are employees of IT Business Solutions, Inc. Under the Equal Pay Act of 1963, It Business Solutions can legitimate
    8·1 answer
  • Walmart created the Great Value brand for their food products and the Equate brand for their​ pharmacy, health, and beauty produ
    9·1 answer
  • The average cost associated with each additional dollar of financing for investment projects is:_________
    14·1 answer
  • A U.S. Senator from Michigan is in favor of environmental regulations that forbid industries from disposing chemical wastes in r
    7·1 answer
  • When sodium chloride, NaCl , is added to water, it forms a solution. The steps involved in the dissolution of NaCl in water are
    9·1 answer
  • Tamarisk, inc. has assets of $4393000, common stock of $1077000, and retained earnings of $604000. what are the creditors’ claim
    6·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!