Thunder Corporation, an amusement park, is considering a capitalinvestment in a new exhibit. The exhibit would cost $166,169 andhave an estimated useful life of 9 years. It will be sold for$68,300 at that time. (Amusement parks need to rotate exhibits tokeep people interested.) It is expected to increase net annual cashflows by $23,100. The companyâs borrowing rate is 8%. Its cost ofcapital is 10%. Calculate the net present value of this project tothe company and determine whether the project is acceptable.

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Sixta KovacekLv2

28 Sep 2019

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Thunder Corporation, an amusement park, is considering a capitalinvestment in a new exhibit. The exhibit would cost $182,762 andhave an estimated useful life of 10 years. It will be sold for$63,400 at that time. (Amusement parks need to rotate exhibits tokeep people interested.) It is expected to increase net annual cashflows by $25,100. The companyâs borrowing rate is 8%. Its cost ofcapital is 10%. Click here to view PV table.

Calculate the net present value of this project to the companyand determine whether the project is acceptable. Show yourwork.

cerisemallard823

1.)Orasco Company is considering purchasing new equipment for$352,657. It is expected that the equipment will produce net annualcash flows of $49,670 over its 10-year useful life. Annualdepreciation will be $35,266. Compute the cash payback period.(Round answer to 1 decimal place, e.g. 10.5.)
_____?___years

2.)Asaki Company accumulates the following data concerning aproposed capital investment: cash cost $210,840, net annual cashflows $40,000, present value factor of cash inflows for 10 years5.43 (rounded). Determine the net present value, and indicatewhether the investment should be made. (If the net present value isnegative, use either a negative sign preceding the number eg -45 orparentheses eg (45).)

Net present value $__________

Should the investment be made? No/Yes

3.)Neville Corporation, an amusement park, is considering a capitalinvestment in a new exhibit. The exhibit would cost $160,613 andhave an estimated useful life of 8 years. It will be sold for$70,800 at that time. (Amusement parks need to rotate exhibits tokeep people interested.) It is expected to increase net annual cashflows by $24,300. The company's borrowing rate is 8%. Its cost ofcapital is 10%. Calculate the net present value of this project tothe company. (If the net present value is negative, use either anegative sign preceding the number eg -45 or parentheses eg (45).Round computations and final answer for present value to 0 decimalplaces, e.g. 125. Round computations for Discount Factor to 5decimal places.)

$_____?_____

The project (is or not) acceptable.?

4.)Keane Bottling Corporation is considering the purchase of a newbottling machine. The machine would cost $205,217 and has anestimated useful life of 8 years with zero salvage value.Management estimates that the new bottling machine will provide netannual cash flows of $37,300. Management also believes that the newbottling machine will save the company money because it is expectedto be more reliable than other machines, and thus will reducedowntime. How much would the reduction in downtime have to be worthin order for the project to be acceptable? Assume a discount rateof 10%. (Hint: Calculate the net present value. If the net presentvalue is negative, use either a negative sign preceding the numbereg -45 or parentheses eg (45). Round computations and final answerfor present value to 0 decimal places, e.g. 125. Round computationsfor Discount Factor to 5 decimal places.)

$______________

whitedolphin464

Tony Skateboards is considering building a new plant. JamesBott, the companyâs marketing manager, is an enthusiastic supporterof the new plant. Michele Martinez, the companyâs chief financialofficer, is not so sure that the plant is a good idea. Currentlythe company purchases its skateboards from foreign manufacturers.The following figures ere estimated regarding the construction ofthe new plant.

Cost of Plant: $4,000,000 Estimated Useful life: 15 yrs

Annual Cash Inflows: $4,000,000 Salvage Value: $2,000,000

Annual Cash Outflows: $3,550,000 Discount Rate: 11%

James Bott believes that these figures understate the truepotential value of the plant. He suggests that by manufacturing itsown skateboards the company will benefit from a âbuy Americanâpatriotism that he believes is common among skateboarders. He alsonotes that the firm has had numerous quality control problems withthe skateboards manufactured by its suppliers. He suggests that theinconsistent quality has resulted in lost sales, increased warrantyclaims, and some costly lawsuits. Overall, he believes sales willbe $200,000 higher than the projected above, and that the savingsfrom lower warranty costs and legal costs will be $80,000 per year.He also believes that the project is not as risky as assumed above,and that a 9% discount rate is more reasonable.

Required:

A: Compute the Cash Payback period for the project based on theoriginal projections.

B: Compute the net present value of the project based on theoriginal projections.

C: Compute the net present value of the project incorporatingJamesâ estimates of the value of the intangible benefits, but stillusing the 11% discount rate.

D: Compute the Cash Payback period for the project incorporatingJamesâ estimates of the value of the intangible benefits.

E: Compute the net present value of the project incorporatingJamesâ estimates of the value of the intangible benefits, butemploying the 9% discount rate.

F: Comment on your findings.

2. The partnership of Michele and Mark is considering thefollowing long-term capital investment proposal. Relevant data onthe project is listed below. Salvage value is expected to be zerofor the project. Depreciation is computed by the straight-linemethod. The companyâs rate of return is the companyâs cost ofcapital which 12%.

Brown

Capital Investment: $200,000

Annual Net Income:

YR 1: $25,000

YR 2: $16,000

YR 3: $13,000

YR 4: $10,000

YR 5: $8,000

Total: $72,000

Required:

1: Compute the cash payback period for the project. (round totwo decimal places)

2: Compute the net present value for the project (round to thenearest dollar)