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AlekseyPX
2 years ago
6

Mariposa Inc is considering improving its production process by acquiring a new machine. There are two machines management is an

alyzing to determine which one it should purchase. The company requires a 14% rate of return and uses straight-line depreciation to a zero book value. Machine A has a cost of $290,000, annual operating costs of $8,000, and a 3-year life. Machine B costs $180,000, has annual operating costs of $12,000, and has a 2-year life. Whichever machine is purchased will be replaced at the end of its useful life. Which machine should Mariposa purchase and why?
Business
1 answer:
kondor19780726 [428]2 years ago
6 0

Answer:

Machine B should be purchased because it has a lower equivalent annual cost

Explanation:

To determine the better of the two options, we would compare the equivalent annual cost of each options using a discount rate of 14% per annum

Equivalent annual cost = Total PV of cost /Annuity factor

Total PV of cost = Initial cost + PV of annual operating cost

PV of annual operating cost= Annual operating cost × Annuity factor

Annuity factor = (1- (1+r)^(-n))/r

r- rate , n- years

Machine A

PV of annual operating cost = 8,000 × (1- 1.14^(-3)/0.14= 18573.05622

PV of total cost = 290,000 +18573.05622 =  308,573.06  

Uniform Annual cost =  308,573.06 /2.321632027 =  132,912.13  

Equivalent annual cost = $132,912.13

Machine B

PV of annual operating cost = 12,000 × (1- 1.14^(-2)/0.14= 19759.92613

PV of total cost = 180,000   + 19759.92613 =  199,759.93  

Equivalent annual cost =  199,759.93 /1.6466=$121,312.15  

Equivalent annual cost = $121,312.15

Machine B should be purchased because it has a lower equivalent annual cost

Total PV of cost

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River Enterprises has ​$502 million in debt and 22 million shares of equity outstanding. Its excess cash reserves are $ 15 milli
Sedbober [7]

Answer:

The stock price would be higher by $7.37

Explanation:

Free cash flow to equity = 195 million with a growth rate of 2% in perpetuity

Value of equity = Free cash flow to equity ÷ (Ce -g) = 195 million ÷ (13% - 2%)

= 190 ÷ 0.11 = $1,772,727,272.73 = $1,773 million

If growth rate is 3%, value of equity = 195 ÷ (13%-3%) = 195 ÷ 0.1 = $1,950  million

a. Value of stock = (1,773 + 15) million ÷ 22 = $81.27

b. Value of stock with 3% = 1,950 ÷ 22 = $88.64

Thus stock price would be higher by = b-a = $7.37

4 0
3 years ago
Diane Manufacturing Company is considering investing $600,000 in new equipment with an estimated useful life of 10 years and no
agasfer [191]

Answer:

Annual estimated net income is $360,00.

Annual estimated net cash inflow is $216,000.

Explanation:

1. Determine the annual estimated net income

Annual estimated net income = Annual cash inflows - Annual cash outflow

Annual estimated net income = $600,000 - $240,000 = $360,00

2. Determine the annual estimated net cash inflow

Annual Tax = Annual estimated net income × Tax rate

Annual Tax = $360,00 × 40% = $144,000.  

Annual estimated net cash inflow = Annual estimated net income - Annual Tax

Annual estimated net cash inflow = $360,00 - $144,000 = $216,000.

Note that depreciation is not considered in the calculation because depreciation not a cash expense.

8 0
3 years ago
Read 2 more answers
Which of the following statements about lump-sum taxes is correct A. A lump-sum tax means that tax revenues vary directly with G
Deffense [45]
D

Lump-sum taxes are described as regressive taxes, meaning that the more income one has, the less they pay in proportion of their income to tax. As a result, they all pay the same, which coincides with D.
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3 years ago
Peter temporarily takes over Thomas job in his absence,what does this move represent? (10 marks)
Ratling [72]

Answer:

A job substitution

Explanation:

A substitute is a person who takes over a job or position from another for a shorter period of time in his absence. The term is known from substitute teachers in the school, but also from substitute priests and substitute doctors who may be subordinate officials who temporarily take over for the superior.

Today, most temporary workers are used in industry and building/construction, where they give companies the opportunity for a faster adaptation to market conditions and thus help to strengthen the competitiveness of the business community.

7 0
2 years ago
A stock has an expected return of 16.1 percent, the risk-free rate is 6.45 percent, and the market risk premium is 7.2 percent.
DiKsa [7]

Answer:

the beta of the stock is 1.34

Explanation:

The calculation of the beta of the stock should be

As we know that

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16.1% - 6.45% = beta × 7.2%

9.65% = beta × 7.2%

So, the beta should be

= 9.65% ÷ 7.2%

= 1.34

Hence, the beta of the stock is 1.34

4 0
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