Mike Mulligan, CEO of Mulligan Excavation Inc, needs to replace Mary Anne, his old steam- driven...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Mike Mulligan, CEO of Mulligan Excavation Inc, needs to replace Mary Anne, his old steam- driven shovel. Mike is looking at three used Caterpillar hydraulic excavators. Each alternative is a different model and each is a different age, and so each has a different expected working life and productive capability. Mike has produced estimates (in the table below) of the purchase price of each excavator and the associated after-tax cash flows that he expects to earn. Mike's cost of capital is 10%. Using the equivalent annual annuity approach, answer the following questions to find which excavator Mike should purchase. Time 0 1 3 Cash flows for Hydraulic Excavators By Model 4 385 CL -140 50 65 40 30 365 CL -110 95 40 345 DL -120 50 40 65 What is the EAA for 385CL? (Round your answer to two decimal places.) What is the EAA for the 365CL? (Round your answer to two decimal places.) What is the EAA for 345DL? (Round your answer to two decimal places.) $ Huck Long is the VP of production at Discraft Inc., manufacturer of freestyle, golf, and ultima discs. The R&D team has designed a new 175gram ultimate disc that can fly 10% further than the old design. The manufacturing process requires a new stamping machine. Huck is considering two alternative machines: Machine A and Machine B. Machine A costs $75,000 and stamps at a high speed but wears out after two years. Huck estimates that Machine A can produce after-tax cash flow of $50,000 at the end of each of the two years. Machine B also costs $75,000, but it stamps at a slower speed and can last four years. Huck estimates that it will produce after-tax cash flow of $30,000 at the end of the next 4 years. Discraft's cost of capital is 12%. Use the replacement chain technique to compare the two alternatives. What is the NPV of each chain, and which should Huck choose? What is the NPV of the chain for Machine A? (Round your answer to the nearest dollar.) $ Check Answer What is the NPV of the chain for Machine B? (Round your answer to the nearest dollar.) Mike Mulligan, CEO of Mulligan Excavation Inc, needs to replace Mary Anne, his old steam- driven shovel. Mike is looking at three used Caterpillar hydraulic excavators. Each alternative is a different model and each is a different age, and so each has a different expected working life and productive capability. Mike has produced estimates (in the table below) of the purchase price of each excavator and the associated after-tax cash flows that he expects to earn. Mike's cost of capital is 10%. Using the equivalent annual annuity approach, answer the following questions to find which excavator Mike should purchase. Time 0 1 3 Cash flows for Hydraulic Excavators By Model 4 385 CL -140 50 65 40 30 365 CL -110 95 40 345 DL -120 50 40 65 What is the EAA for 385CL? (Round your answer to two decimal places.) What is the EAA for the 365CL? (Round your answer to two decimal places.) What is the EAA for 345DL? (Round your answer to two decimal places.) $ Huck Long is the VP of production at Discraft Inc., manufacturer of freestyle, golf, and ultima discs. The R&D team has designed a new 175gram ultimate disc that can fly 10% further than the old design. The manufacturing process requires a new stamping machine. Huck is considering two alternative machines: Machine A and Machine B. Machine A costs $75,000 and stamps at a high speed but wears out after two years. Huck estimates that Machine A can produce after-tax cash flow of $50,000 at the end of each of the two years. Machine B also costs $75,000, but it stamps at a slower speed and can last four years. Huck estimates that it will produce after-tax cash flow of $30,000 at the end of the next 4 years. Discraft's cost of capital is 12%. Use the replacement chain technique to compare the two alternatives. What is the NPV of each chain, and which should Huck choose? What is the NPV of the chain for Machine A? (Round your answer to the nearest dollar.) $ Check Answer What is the NPV of the chain for Machine B? (Round your answer to the nearest dollar.)
Expert Answer:
Answer rating: 100% (QA)
To determine which excavator Mike should purchase using the equivalent annual annuity EAA approach we need to calculate the EAA for each excavator and ... View the full answer
Related Book For
Accounting
ISBN: 978-1118608227
9th edition
Authors: Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield, John Hoggett
Posted Date:
Students also viewed these finance questions
-
Elroy had been with Barnes Machine Company a year since finishing a BS in industrial engineering (IE). Barnes had been in business for over 50 years, but the company had only recently moved from...
-
Read the case study "Southwest Airlines," found in Part 2 of your textbook. Review the "Guide to Case Analysis" found on pp. CA1 - CA11 of your textbook. (This guide follows the last case in the...
-
What will the following code display? numbers = [1, 2, 3, 4, 5] numbers [2] = 99 print (numbers)
-
The current I2 is adjusted until the magnetic field 5.5 cm below wire 2 has a magnitude of 2.5 10-6 T and points out of the page. Everything else in the system remains the same as in Quick Example...
-
Marketing. Repeat Problem 71 if the monthly rate of increase in sales is found to be approximated by sS' (t) 20 - 20e -0.05t 0 t 24
-
Describe the responsibilities and the various agencies within the DHHS.
-
Starbucks is a relatively young, fast-growing company that is a pioneer and leader its industry. Excerpts from its 2009 statement of cash flows are as follows (dollars in millions): *change in the...
-
(2). A minimization LP is being solved by the big M method. e is the excess variable in constraint 1, s2 is the slack variable in constraint 2, and a, a3 are the artificial variables of constraints...
-
Dispersion intra - mode des fibres monomodes, comprend ( ) et la dispersion des guides d'ondes A . Dispersion des mat riaux B . Bruissement de fr quence C . Diaphonie entre codes D . Dispersion...
-
make a marketing plan for and auto-repair shop including all the information below. Marketing plan: Include all of the following sections: Company overview Give an overview of your business. Why does...
-
Sheridan Communications contracted to set up a call center for the City of Phoenix. Under the terms of the contract, Sheridan Communications will design and set-up a call center with the following...
-
Match the following mathematical operations with their correct number of significant figures in the result: Prompts (1) 5.3+7.11 2) 8.0002 1.002 14.6 x 2.01 4) 0.016/4.002 Answers 3 4 3 2
-
On January 1, 2021, Pine Retailers purchased $100,000 of Elm Company bonds. The Elm bonds mature on December 31, 2025 and pay 7% interest. The bonds were purchased when the market interest rate was...
-
A 2kg object moves on the path shown in the figure.It is released from the point A and moves towards point B. When it reaches the point B, it has a speed of 5m.s-. 3m 5m/s 1m B
-
1. A payment of $5000 is due in three months and another payment of $8000 is due in nine months. Calculate the value of a single payment to be made in 5 months that is equivalent to these two...
-
What can scientists learn by comparing the fossilized skeletons of extinct primates with the bones of modern species?
-
Classify each of the following activities as being either operating, investing or financing for the purpose of preparing a statement of cash flows. Indicate whether there is an inflow (I) or outflow...
-
The following information relates to Dunadeal Ltd at 30 June 2019: Share capital 100 000 10% cumulative preference shares issued at $1 each 200 000 ordinary shares issued at $1 each $100 000 200 000...
-
Why do businesses that use a perpetual inventory system continue to perform a physical stocktake at least once a year?
-
Margin of error = \($5\), standard deviation = \($20\)
-
Margin of error = 18.2 cm, standard deviation = 95.2 cm
-
Margin of error = 0.5 g, standard deviation = 8.7 g
Study smarter with the SolutionInn App