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neonofarm [45]
4 years ago
7

Net Present Value and Competing Projects For discount factors use Exhibit 12B.1 and Exhibit 12B.2. Spiro Hospital is investigati

ng the possibility of investing in new dialysis equipment. Two local manufacturers of this equipment are being considered as sources of the equipment. After-tax cash inflows for the two competing projects are as follows: Year Puro Equipment Briggs Equipment 1 $320,000 $120,000 2 280,000 120,000 3 240,000 320,000 4 160,000 400,000 5 120,000 440,000 Both projects require an initial investment of $560,000. In both cases, assume that the equipment has a life of 5 years with no salvage value. Required: Round present value calculations and your final answers to the nearest dollar. 1. Assuming a discount rate of 14%, compute the net present value of each piece of equipment. Puro equipment: $ Briggs equipment: $ 2. A third option has surfaced for equipment purchased from an out-of-state supplier. The cost is also $560,000, but this equipment will produce even cash flows over its 5-year life. What must the annual cash flow be for this equipment to be selected over the other two
Business
1 answer:
AleksandrR [38]4 years ago
5 0

Answer:

1. Assuming a discount rate of 14%, compute the net present value of each piece of equipment.

  • Puro equipment: $255,203
  • Briggs equipment: $318,944

2. A third option has surfaced for equipment purchased from an out-of-state supplier. The cost is also $560,000, but this equipment will produce even cash flows over its 5-year life. What must the annual cash flow be for this equipment to be selected over the other two

  • $256,021

Explanation:

Year      Puro Equipment       Briggs Equipment

0             -$560,000                    -$560,000

1               $320,000                      $120,000

2              $280,000                      $120,000

3              $240,000                      $320,000

4               $160,000                      $400,000

5               $120,000                      $440,000

I used an excel spreadsheet to calculate the NPVs

the PV of the third equipment's annual cash flow should be higher than $878,944  (PV of Brigg's cash flows = $560,000 + $318,944)

now I used a annuity table: annuity factor for 5 years and 14% is 3.4331

cash flow x 3.4331 ≥ $878,944

cash flow ≥ $878,944 / 3.4331 = $256,021

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Sphinxa [80]

Answer:

I don’t know that I would call them methods - a better word might be behaviors. And I don’t know if I can come up with ten.

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6 0
3 years ago
ZZZ Best Company's fixed expenses total $180,000, its variable expense ratio is 25% and its variable expenses are $5 per unit. B
pychu [463]

Answer:

Break-even point in units = 12000 units

Explanation:

Break-even point is where sales and expenses are the same, thus the sales of a company are enough to cover its expenses.

Break-even point in units= Fixed cost / ( price of product-variable costs)

Variable expense ratio = variable expense per unit/price per unit

25% = 5/ price per unit

0.25=5/price per unit

5/0.25 = price per unit

$20 =price per unit

Break-even point in units= Fixed cost / ( price of product-variable costs)

Break-even point in units = $180,000 / ($20-$5)

Break-even point in units = $180,000 / $15

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Digby's product manager is considering lowering the price of the Daft product by $2.50 and wants to know what the impact will be
Dvinal [7]

Answer:

D.  34.00%

Explanation:

The computation of the new contribution margin is shown below:

As we know that

Contribution Margin = Net Sales Revenue - Variable Expenses

where,

Net sales revenue is

= 604 units × $32.5

= $19,630

The variable expense = Total material cost + total labor cost

Total Material Cost = 604 units × $14.36 = $8,673.44

Total Labor Cost = 604 units × $7.09 = $4,282.36

So, the variable expense is

= $8,673.44 + $4,282.36

= $12,955.8

Now

Contribution margin = $19,630 - $12,955.8 = $6,674.2

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"A borrower obtained a $10,000 term loan with 6 1/2% interest paid yearly. A $1,000 principal reduction was to be paid with each
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Answer:

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Interest payable at the end of the second year = 6.5% of principal outstanding at the beginning of the second year = 6.5% of 9000

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Hence total payment at the end of the second year = $1000 + $585= $1585

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Answer: The overall price level increased.

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