1 | ||
Annual cost savings | 400000 | |
X PV factor | 4.675 | =(1-(1.20)^-15)/0.20 |
Present value of Annual cost savings | 1870000 | |
Less: Investment cost | 2500000 | |
Net present value | -630000 | |
2 | ||
Negative Net present value to offset | 630000 | |
Divide by PV factor | 4.675 | |
Minimum dollar value | 134759 |
Exercise 14-4 (Static) Uncertain Future Cash Flows [L014-4] Lukow Products Is Investigating the purchase of a...
Exercise 13-4 Uncertain Future Cash Flows [LO13-4] Lukow Products is investigating the purchase of a piece of automated equipment that will save $100,000 each year in direct labor and inventory carrying costs. This equipment costs $890,000 and is expected to have a 6-year useful life with no salvage value. The company’s required rate of return is 9% on all equipment purchases. Management anticipates that this equipment will provide intangible benefits such as greater flexibility and higher-quality output that will result...
Lukow Products is investigating the purchase of a piece of automated equipment that will save $110,000 each year in direct labor and inventory carrying costs. This equipment costs $820,000 and is expected to have a 7-year useful life with no salvage value. The company’s required rate of return is 7% on all equipment purchases. Management anticipates that this equipment will provide intangible benefits such as greater flexibility and higher-quality output that will result in additional future cash inflows. Click here to...
Lukow Products is investigating the purchase of a piece of automated equipment that will save $120,000 each year in direct labor and inventory carrying costs. This equipment costs $910,000 and is expected to have a 11-year useful life with no salvage value. The company's required rate of return is 10% on all equipment purchases. Management anticipates that this equipment will provide intangible benefits such as greater flexibility and higher-quality output that will result in additional future cash inflows. Click here to...
Lukow Products is investigating the purchase of a piece of automated equipment that will save $130,000 each year in direct labor and inventory carrying costs. This equipment costs $920,000 and is expected to have a 6-year useful life with no salvage value. The company's required rate of return is 11% on all equipment purchases. Management anticipates that this equipment will provide intangible benefits such as greater flexibility and higher-quality output that will result in additional future cash inflows. Click here to...
Chapter 8 Net Present Value/Uncertain Cash Flows Tiger Computers, Inc., of Singapore is considering the purchase of an automated etching machine for us production of its circuit boards. The machine would cost $800,000. An additional $550,000 would be required for installation costs and for software. Management believes that the automated machine wou provide substantial annual reductions in costs, as shown below: Labor costs Material costs Annual Reduction in Costs $140,000 $96,000 The new machine would require considerable maintenance work to...
Saxon Products, Inc., is investigating the purchase of a robot for use on the company’s assembly line. Selected data relating to the robot are provided below: Cost of the robot $ 2,000,000 Installation and software $ 490,000 Annual savings in inventory carrying costs $ 218,000 Annual increase in power and maintenance costs $ 38,000 Salvage value in 5 years $ 78,000 Useful life 5 years In addition to the data above, engineering studies suggest that use of the robot will...
Net Present Value Analysis; Uncertain Cash Flows“I’m not sure we should lay out $500,000 for that automated welding machine,” said Jim Alder, president of the Superior Equipment Company. “That’s a lot of money, and it would cost us $80,000 for software and installation, and another $3,000 every month just to maintain the thing. In addition, the manufacturer admits that it would cost $45,000 more at the end of seven years to replace worn-out parts.” “I admit it’s a lot of...
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"I'm not sure we should lay out $310,000 for that automated welding machine," said Jim Alder, president of the Superior Equipment Company. "That's a lot of money, and it would cost us another $50,400 per year just to maintain the thing. In addition, the manufacturer admits it would cost $49,000 more at the end of three years to replace worn-out parts." $86,000 for software and installation, and "I admit it's a lot of money," said...
2.
Devon Corporation uses a discount rate of 8% in its capital budgeting. Partial analysis of an investment in automated equipment with a useful life of 6 years has thus far yielded a net present value of -$502,141. This analysis did not include any estimates of the intangible benefits of automating this process nor did it include any estimate of the salvage value of the equipment. (Ignore income taxes.) Click here to view Exhibit 13B-1 and Exhibit 13B-2 to determine...
Lukow Products is investigating the purchase of a piece of
automated equipment that will save $100,000 each year in direct
labor and inventory carrying costs. This equipment costs $750,000
and is expected to have a 7-year useful life with no salvage value.
The company’s required rate of return is 7% on all equipment
purchases. Management anticipates that this equipment will provide
intangible benefits such as greater flexibility and higher-quality
output that will result in additional future cash inflows.
Click here...