A farmer is considering whether or not to install new irrigation equipment. The installation will cost...
A farmer is considering whether or not to install new irrigation equipment. The installation will cost the farmer $150,000, but is expected to increase crop yields and net revenues by $35,000 in the first year, $40,000 in the second year, $45,000 in the third year, and $60,000 in the fourth year. Should the farmer install the irrigation equipment if the interest rate is 8 percent?
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No, because the net present value of the installation is approximately −$3,475.
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None of the options.
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Yes, because the net present value of the installation is approximately $577.
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Yes, because the net present value of the installation is approximately $1,111.
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No, because the net present value of the installation is approximately −$1,444.
Homework Answers
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A farmer is considering whether or not to install new irrigation
equipment. The installation will cost...
A farmer is thinking about investing in a center pivot irrigation system to irrigate 120 acres...
A farmer is thinking about investing in a center pivot irrigation system to irrigate 120 acres of land in Dawson County. This land is used to produce cotton and is currently a dryland operation. Currently production is approximately % bale of cotton per acre. The current operating expenses are $100 per acre. With an irrigation system, operating expenses would increase by $125 per acre due to electricity, maintenance and additional labor (Total operating expense = $225). The irrigation system will...
Set-up The cost of installing a new piece of pollution control equipment at a cement factory...
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Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost...
Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost is $500,000. If the equipment is purchased, the following earnings before depreciation and taxes will be generated for the next six years. Use Table 12- 12. Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Earnings before Depreciation $150,000 200,000 110,000 92,000 82,000 45,000 The firm is in a 25 percent tax bracket and has a 12 percent cost of capital...
Broadway Industries is considering whether to automate one phase of its production line. The automation equipment...
Broadway Industries is considering whether to automate one phase of its production line. The automation equipment has a six - year life with no residual and will cost $890,000. Projected net cash flows are as follows: Year 1 $ 250,000 Year 2 240,000 Year 3 210,000 Year 4 205,000 Year 5 200,000 Year 6 180,000 Requirement 1 : Compute this project’s Net Present Value (NPV) using Broadway’s 10% hurdle (required) rate. Should Broadway invest in the automation e quipment? Year...
Broadway Industries is considering whether to automate one phase of its production line. The automation equipment...
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The Bistro is planning to add a new line of noodles that will require the acquisition of new processing equipment. The equipment will cost $1,000,000, including installation and shipping. It will be depreciated straight-line to zero value over the 10-year
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Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost is $500,000. If the equipment is purchased, the following earnings before depreciation and taxes will be generated for the next six years. Use Table 12-12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Earnings before Depreciation Year 1 $ 150,000 Year 2 200,000 Year 3 110,000 Year 4 92,000 Year 5 82,000 Year...
The shipping costs, sales tax, installation cost for the RBT500 will be $120,000. The equipment itself...
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Investment Outlay Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $14 million, and production and sales will require an initial $2 million investment in net operating working capital. The company's tax rate is 35%. What is the initial investment outlay? Write out your answer completely. For example, 2 million should be entered as 2,000,000. $ The company spent and expensed $150,000 on research related to the new product last year. Would this change your...
part 1 part 2 Data Example E Cost of equipment needed Working capital needed Overhaul of...
part 1
part 2
Data Example E Cost of equipment needed Working capital needed Overhaul of equipment in four years Salvage value of the equipment in five years Annual revenues and costs: Sales Cost of goods sold Out-of-pocket operating costs Discount rate $60,000 $100.000 $5,000 $10,000 $200,000 $125,000 $35,000 14% Enter a forma into each of the cells marked with a ? Below Exhibit 13-8 Years 13 14 Now (60,000) (100,000) Purchase of equipment Investment in working capital Sales Cost...
A farmer is thinking about investing in a center pivot irrigation system to irrigate 120 acres of land in Dawson County. This land is used to produce cotton and is currently a dryland operation. Currently production is approximately % bale of cotton per acre. The current operating expenses are $100 per acre. With an irrigation system, operating expenses would increase by $125 per acre due to electricity, maintenance and additional labor (Total operating expense = $225). The irrigation system will...
Set-up The cost of installing a new piece of pollution control equipment at a cement factory is $60,000. Engineers and public health officials estimate that if the equipment is installed now (at year o), in every year afterwards (for years 1, 2, 3, ...) it will produce a health benefit of $7,000. There will also be an annual cost of maintenance of $1,000 per year. Questions i. What is the present value of the net benefit of the pollution control...
Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost is $500,000. If the equipment is purchased, the following earnings before depreciation and taxes will be generated for the next six years. Use Table 12- 12. Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Earnings before Depreciation $150,000 200,000 110,000 92,000 82,000 45,000 The firm is in a 25 percent tax bracket and has a 12 percent cost of capital...
part 1
part 2
Data Example E Cost of equipment needed Working capital needed Overhaul of equipment in four years Salvage value of the equipment in five years Annual revenues and costs: Sales Cost of goods sold Out-of-pocket operating costs Discount rate $60,000 $100.000 $5,000 $10,000 $200,000 $125,000 $35,000 14% Enter a forma into each of the cells marked with a ? Below Exhibit 13-8 Years 13 14 Now (60,000) (100,000) Purchase of equipment Investment in working capital Sales Cost...
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