could you kindly post the answers of the above questions here or email me them, as they would be a useful revision tool.

Thank you for this great website

Owen

Cross Co. is able to sell one of its two machines. Both machines perform the same function but differ in age.

The newer machine can be sold today for $40,000. Its operating costs are $20,000 a year, but in 5 years the machine will require a $50,000 overhaul. Thereafter operating cost will be $30,000 a year until the machine is finally sold in year 10 for $5,000.

The older machine can be sold today for $20,000. If it is kept, it will need an immediate $20,000 overhaul. After that the operating costs will be $30,000 a year until the machine is finally sold in year 5 for $5,000.

Both machines are fully deprecitated for tax purposes. The company pays 35% tax on the gain from selling a machine. Cash flows have been forecasted in real terms, and the cost of capital is 12%.

Which machine should Cross Co. sell?

On January 1, 2009, James Corporation sold a $500,000, 7% bond issue dated January 1, 2009. The market interest rate on January 1, 2009, was 10%. The bonds pay interest each December 31, and mature December 31, 2018. James Corporation uses the effective-interest method of amortization.

Answer the following questions in Excel and submit your completed Excel file. Round calculated amounts to the nearest dollars.

Compute the bond issue price using the present value tables provided in Appendix C pages C-14 through C-16. The present value factors from the tables should be rounded to 4 decimal places when you use them in your calculations. Show your present value calculations.

Prepare a bond amortization schedule for these bonds using the format shown in supplement 14B.

In your amortization schedule, you may need to adjust your interest expense slightly in the last interest period due to the effects of rounding in the problem. If needed, you will adjust the interest expense so the ending balance of the unamortized bond discount or premium is exactly zero at the end of the last interest period.

Prepare the journal entry to record the issuance of the bonds on January 1, 2009.

Prepare the journal entry to record the interest payment on December 31, 2009.
Can you please help me?

Caltech is considering the purchase of a new printing press. The
total installed cost of the press is R2.2 million. This outlay would
be partially offset by the sale of an existing press. The old press
has zero book value, cost R1 million 10 years ago, and can be
sold currently for R1.2 million before taxes. As a result of
acquisition of the new press, sales in each of the next 5 years
are expected to be R1.6 million higher than with the existing
press, but product cost (excluding depreciation) will represent
50% of sales. The new press will be depreciated on a straightline
basis over 5 years and will be terminated at end of 5th year
for a scrap value of R90 000 . Caltech cost capital is 11%.
Assume a 29% tax rate.

initial investment
operating cash flow
terminal cash flow
NVP
IRR
Payback period

Initial outlay

If Smart Limited decides to proceed with the production of the SuperStrimmie, it will require an investment of £4,200,000 in a new machine. This machine will have a useful life of five years at which point the company believes it can be sold for £500,000. Depreciation is calculated on a straight line basis over the five years.

Demand and price

The SuperStrimmie is to be competitively priced at £70.00.
The sales and marketing director has already commissioned some preliminary market research at a cost of £140,000 and the results of this research suggest that likely demand for the new SuperStrimmie at this price will be as follows:

Year Demand
(units)
1 66,000
2 58,000
3 48,000
4 46,000
5 38,000

Costs:

The production manager and the finance director have spent considerable time analysing likely costs and they have arrived at the following:

Variable costs
Direct materials £14
Direct labour £8
Other variable costs £7
Total £29

In addition the SuperStrimmie will require an electric motor. The unit cost of making the electric motors in-house is as follows:

Materials (variable) £8
Labour (variable) £7
Total £15

If the electric motor is produced in-house, incremental fixed costs will increase by £35,000 per year.

A competitive bidding process has established that production of the motor for the SuperStrimmie could be sub-contracted to another supplier for the next five years. Any contract would run for the full, five year life of the SuperStrimmie. The unit cost charged by the supplier will depend on annual volume supplied as follows:

Annual volume (units) Sub-contract cost of the electric motor

0 – 50,000 £17
50,001 – 60,000 £16
60,001 – 70,000 £13

Batch related costs

The production manager has undertaken a costing exercise and has established that the SuperStrimmie will have the following batch related costs. These costs ‘vary’ each time a batch, or part batch, of the SuperStrimmie is produced.

SuperStrimmie
Machine Set-up costs per production run: £1200
Number of units per production run: 1,000
Quality assurance costs per 2,000 units produced £1,400

Incremental fixed costs

Other incremental maintenance and fixed costs associated with producing the new SuperStrimmie product are:

Cost per year:
years 1 and 2 Cost per year:
years 3 to 5
Machine maintenance costs £14,000 £26,000
Other fixed costs £62,000 £44,000

Impact on an existing product

The Sales and Marketing Director estimates that the introduction of the SuperStrimmie will affect demand of an existing product; the TimMie. Demand for the TimMie will reduce by 5% of the estimated volume of the SuperStrimmie in each year.

The unit contribution of the TimMie is £25.

Other information

Ignore inflation and taxation.

Assume the company’s cost of capital is 10%

What you need to do:

1) You should undertake a financial evaluation of whether the electric motor for the new SuperStrimmie should be subcontracted or produced internally.

2) Based on the decision you reach in part 1) together with the other data provided, calculate the:

Net Present Value (NPV), Internal Rate of Return (IRR), & Payback Period and the Accounting Rate of Return for the above project.

3) The Managing Director of Smart Limited has also asked you to prepare a product profit statement for each of the five years as follows:

Total Contribution from SuperStrimmie XXX
Lost Contribution from the TimMie (XXX)
Net Contribution XXX
Less batch related costs (XXX)
Less other incremental fixed costs (XXX)
Net Product cash flow XXX
Product depreciation (XXX)
Product Profit/(loss) after depreciation

Month Assumption 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36

No. of Operators 5 5 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36
Call hours 1 200 500 875 1050 1225 1400 1575 1750 1925 2100 2275 2450 2625 2800 2975 3150 3325 3500 3675 3850 4025 4200 4375 4550 4725 4900 5075 5250 5425 5600 5775 5950 6125 6300

In-flow
Capital 500.00
Loan 2 400.00
Revenue 3 15.00 37.50 65.63 78.75 91.88 105.00 118.13 131.25 144.38 157.50 170.63 183.75 196.88 210.00 223.13 236.25 249.38 262.50 275.63 288.75 301.88 315.00 328.13 341.25 354.38 367.50 380.63 393.75 406.88 420.00 433.13 446.25 459.38 472.50
Total Cash Inflow 500.00 – – 415.00 37.50 65.63 78.75 91.88 105.00 118.13 131.25 144.38 157.50 170.63 183.75 196.88 210.00 223.13 236.25 249.38 262.50 275.63 288.75 301.88 315.00 328.13 341.25 354.38 367.50 380.63 393.75 406.88 420.00 433.13 446.25 459.38 472.50

Out-flow
Loan-payback 2 20.00 20.00 20.00 20.00 20.00 20.00 20.00 20.00 20.00 20.00 20.00 20.00 20.00 20.00 20.00 20.00 20.00 20.00 20.00 20.00 20.00 20.00
Purchase & support 4 150.00 150.00 15.00 15.00
Office rent 5 100.00 100.00 100.00 100.00 100.00 100.00
Support Salaries 6 23.00 39.00 42.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 65.00 65.00 65.00 65.00 65.00 65.00 75.00 75.00 75.00 75.00 75.00 75.00 75.00 75.00 75.00 75.00 75.00 75.00 75.00
Operators Salaries 6 25.00 25.00 25.00 30.00 35.00 40.00 45.00 50.00 55.00 60.00 65.00 70.00 75.00 80.00 85.00 90.00 95.00 100.00 105.00 110.00 115.00 120.00 125.00 130.00 135.00 140.00 145.00 150.00 155.00 160.00 165.00 170.00 175.00 180.00
Phone Bill 7 1.20 3.00 5.25 6.30 7.35 8.40 9.45 10.50 11.55 12.60 13.65 14.70 15.75 16.80 17.85 18.90 19.95 21.00 22.05 23.10 24.15 25.20 26.25 27.30 28.35 29.40 30.45 31.50 32.55 33.60 34.65 35.70 36.75 37.80
Other expenses 8 50.00 20.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00
Total Cash outflow 73.00 309.00 42.00 231.20 83.00 85.25 91.30 197.35 103.40 109.45 115.50 121.55 127.60 233.65 139.70 180.75 171.80 177.85 198.90 304.95 211.00 217.05 223.10 229.15 245.20 351.25 257.30 278.35 269.40 275.45 281.50 387.55 293.60 299.65 305.70 311.75 317.80

Cumulative Net Cash 427.00 118.00 76.00 259.80 214.30 194.68 182.13 76.65 78.25 86.93 102.68 125.50 155.40 92.38 136.43 152.55 190.76 236.04 273.39 217.82 269.33 327.91 393.56 466.29 536.10 512.98 596.93 672.96 771.07 876.25 988.50 1,007.83 1,134.24 1,267.72 1,408.27 1,555.90 1,710.61

A company is considering the purchase of new equipment to manufacture specailty spark plugs. The new equipment would allow the firm to manufacture 100,m000 additional spark plugs per year and is expect to have a useful life of 5 yeas and to have no salvage value at that time. SAC will depreciate the equipment using the straight-line method. Specialty spark plugs are selling for an average price of $20 and are expected to cost $8 to manufacture with the new equipment. Indirect costs are expect to remain the same. The equipment will cost $3 million to purchase and install.

The company intends to keep its capital structure intact in financing this equipment.

Capital Structure:

Stocks: % of capital-60%. Rate of return-14%

Bonds- % of capital 40%. Ratue of return- 6%

Is this a good investment for the company? What is it’s NPV and IRR. I have no idea what I’m doing.

As part of the drive to reduce costs and increase profitability a company is considering investing in new manufacturing equipment. This equipment will require a large initial outlay and will result in positive cash inflows for the four-year useful life. The company commissioned and paid for a report by management consultants last year at a cost of £50,000 which forecast the following information on the equipment.

1. The equipment will cost £2,000,000. It can be sold after four years for £200,000 and should be depreciated at 25% per annum using the straight line basis. Capital allowances are available at 15% on a straight line basis.
2. An initial investment in working capital of £50,000 is required. This will be maintained for the four years. At the end of the four year period this will be recovered.
3. Production efficiencies of £500,000 per annum are expected in year 1 and these will grow at 3% per annum thereafter.
4. Annual savings on labour are expected to amount to £150,000 in year 1 growing at a rate of 5% per annum for each of the next three years.
5. The managing director of the company has indicated that £200,000 of existing head office costs will be allocated to the new machinery.
6. The rooms where the plant will be located is currently let out to a local business for £25,000 per annum.
7. The company pays corporation tax at the rate of 12.5% payable one year in arrears.
8. The company has a weighted average cost of capital of 10%. This was last calculated 3 years ago.

Requirement:

a) Calculate the NPV of the proposed project and justify your treatment of each cost referred to in the question.
12 Marks
b) Calculate 3 alternative methods of appraising this investment, explain each method and highlight the disadvantages of each relative to the NPV method.
12 Marks

1) a machine man is considering a four-year project to improve its productivity effeciency. Buying a new machine press for $480,000 is estimated to result in 4160,000 in annual pretex cost savings. the press falls in the MARCS fiveyear class, and it willhave a salvage value at the end of the project of $70, 000. the press also requires an initial investment in spare parts inventory of $20,000. along with an additional $3000 in inventory for each succeeding year of the project. if the shop’s tax rate is 35 percent and its discount rate is 15 recent, should him buy and install the machine press?

2) Calculating Project NPV – A restaurant is considering the purchase of a $10,000 souffle maker. the souffle maker has an economic life of five years and will be fully depreciated by the staright-line method. The machine will produce 2,000 souffles per year, with each costing $2 to make and price at $5. Assume that the discount rate is 15 percent and the tax rate is 34 percent. Should the restaurant make the purchase?

Thanks.

Company iz investing 50 million which will results an incremental sales of 2 million in 1st year after the fleet has been launch.
The inflation rate is 10% use straight line method for 5 years.
and calculate NPV of project. The tax rate assume to be 35% . Calculate the cash flow.

Can you please assist me with this one :

Terminator Pest Control Limited projects unit sales for a new household-use laser-guided cockroach eradication system as follows:

Year Unit Sales
1 100000
2 105000
3 110000
4 114000
5 80000

The eradication system will require $600 000 in net working capital (NWC) to start, and additional net working capital investments each year equal to 40 per cent of the projected sales increase for the following year. (Since sales are expected to fall in year 5 then, there is no NWC cash flow occurring for year 4.)
Total fixed costs are R200000 per year, variable production costs are R200 per unit, and the units are priced at R325 each. The equipment needed to begin production has an installed cost of R13 250 000. This equipment is to be depreciated for tax purposes over six years. At the end of the expected project life of five years this equipment can probably be sold for about 25% of its acquisition cost. The company pay
35% tax and has a required return on all its projects of 25%.

Based on these preliminary project
estimates, what is the NPV and IRR of the project?