Pronto Cleaners, a chain of dry- cleaning stores, has the opportunity to invest in one of...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Pronto Cleaners, a chain of dry- cleaning stores, has the opportunity to invest in one of two dry cleaning machines. Machine A has a four-year expected life and a cost of $30,000. It will cost an additional $6,500 to have the machine delivered and installed, and the expected residual value at the end of four years is $4,000. Machine B has a four-year expected life and a cost of $55,000. It will cost an additional $7,000 to have the machine delivered and installed, and the expected residual value at the end of four years is $6,000. Pronto has a required rate of return of 14 percent. Additional cash flows related to the machines are as follows: Machine A Item Year 1 Year 2 Year 3 Year 4 Labor saving Power saving Chemical saving $25,000 $25,000 $25,000 $25,000 1,500 3,000 (1,200) (2,500) 1,500 1,500 1,500 3,000 (1,200) (2,500) 3,000 3,000 (1,200) (2,500) Additional maintenance (1,200) (2,500) Additional miscellaneous Machine B Item Year 1 Year 2 Year 3 Year 4 Labor saving Power saving Chemical saving $32,000 2,000 3,500 (1,500) (2,700) $32,000 2,000 3,500 (1,500) (2,700) $32,000 2,000 $32,000 3,500 (1,500) (2,700) 2,000 3,500 (1,500) (2,700) Additional maintenance Additional miscellaneous Required a. Ignoring taxes, determine the net present value of investing in machine A. b. Ignoring taxes, determine the net present value of investing in machine B. c. Which, if any, machine should be purchased? Pronto Cleaners, a chain of dry- cleaning stores, has the opportunity to invest in one of two dry cleaning machines. Machine A has a four-year expected life and a cost of $30,000. It will cost an additional $6,500 to have the machine delivered and installed, and the expected residual value at the end of four years is $4,000. Machine B has a four-year expected life and a cost of $55,000. It will cost an additional $7,000 to have the machine delivered and installed, and the expected residual value at the end of four years is $6,000. Pronto has a required rate of return of 14 percent. Additional cash flows related to the machines are as follows: Machine A Item Year 1 Year 2 Year 3 Year 4 Labor saving Power saving Chemical saving $25,000 $25,000 $25,000 $25,000 1,500 3,000 (1,200) (2,500) 1,500 1,500 1,500 3,000 (1,200) (2,500) 3,000 3,000 (1,200) (2,500) Additional maintenance (1,200) (2,500) Additional miscellaneous Machine B Item Year 1 Year 2 Year 3 Year 4 Labor saving Power saving Chemical saving $32,000 2,000 3,500 (1,500) (2,700) $32,000 2,000 3,500 (1,500) (2,700) $32,000 2,000 $32,000 3,500 (1,500) (2,700) 2,000 3,500 (1,500) (2,700) Additional maintenance Additional miscellaneous Required a. Ignoring taxes, determine the net present value of investing in machine A. b. Ignoring taxes, determine the net present value of investing in machine B. c. Which, if any, machine should be purchased?
Expert Answer:
Answer rating: 100% (QA)
a Ignoring taxes determine the net present value of in... View the full answer
Related Book For
Financial management theory and practice
ISBN: 978-0324422696
12th Edition
Authors: Eugene F. Brigham and Michael C. Ehrhardt
Posted Date:
Students also viewed these mathematics questions
-
The Perez Company has the opportunity to invest in one of two mutually exclusive machines that will produce a product it will need for the foreseeable future. Machine A costs $10 million but realizes...
-
The Perez Company has the opportunity to invest in one of two mutually exclusive machines that will produce a product it will need for the foreseeable future. Machine A costs $10 million but realizes...
-
The Fernandez Company has an opportunity to invest in one of two mutually exclusive machines that will produce a product the company will need for the next 8 years. Machine A costs $10 million but...
-
Determine the largest force P that can be exerted at the jaws of the punch without exceeding a stress of 16 ksi on section m-n of the frame.
-
Supply the missing dollar amounts for the 2014 statement of earnings of Kwan Company for each of the following independent cases: Case C Sales returns and allowances Net sales revenue Beginning...
-
Show the polyphase decomposition structure, as given in Equation (8.35), for an FIR filter with impulse response \[h(n)=0.25,0.5,0.5,1,1,0.5,0.5,0.25\] for \(n=0,1, \ldots, 7\). Try to minimize the...
-
Dixon, Cowell and Cooper are in partnership sharing profits and losses in the ratio 2:2:1 respectively. During the year ended 31 December 2007 the net profit of the firm was 30,538. You are also...
-
A firm has net sales of $3,000, cash expenses (including taxes) of $1,400, and depreciation of $500. If accounts receivable increase over the period by $400, what would be cash flow from operations?
-
Problem 1. (1 point) Find the volume of the solid obtained by rotating the region bounded by x=3y, y = 1, x = 0, about the y-axis. Answer:
-
1. Since Mr. Snodgrass doesnt have any historical data, (only an estimate of the number of customers hell serve each month), which specific type of qualitative method is he using? What would be the...
-
Q8: Organisations have policies and procedures which relate to budgeting and forecasting. Circle the letter that indicates which key features should be included: The policy framework should include:...
-
A partnership has the following capital balances: Artur, Capital Bella, Capital Callo, Capital $ 60,000 30,000 90,000 Profits and losses are split as follows: Artur (20%), Bella (30%), and Callo (50%...
-
A quadratic function has zeroes 3+ 5 and 3- 5 and contains the point (-2, -10). Find the equation of the quadratic function in standard form.
-
1. Point charge 1 with q = -2q, is located at the origin. Point charge 2 with 92 = +q is located at (3a, 4a, 0). (a) Find the magnitude of the force by 92 on 91. The knowns are q, ke and a. (5 points)
-
Using the resources, answer the following questions: Describe what High Leverage Practices (HLPs) are and how they are used. Identify how HLPs connect to teaching and learning. Discuss how HLPs can...
-
9. Evaluate the following limits x-2x (i) limx-2 x2-5x+6. sin4x (ii) limx-o sin2x
-
Saved The following transactions apply to Pecan Co. for Year 1, its first year of operations: 1. Received $32,000 cash in exchange for issuance of common stock. 2. Secured a $117,000 ten-year...
-
A sample statistic will not change from sample to sample. Determine whether the statement is true or false. If it is false, rewrite it as a true statement.
-
What are the three types of risk that are relevant in capital budgeting? 2. How is each of these risk types measured, and how do they relate to one another? MINI CASE Shrieves Casting Company is...
-
What is the underlying cause of ranking conflicts between NPV and IRR?
-
What effect does the trend in stock prices (subsequent to issue) have on a firms ability to raise funds through (a) Convertibles and (b) Warrants?
-
EuroVirtuals EPS and Euro Appreciation/ Depreciation. Since its introduction in 2003, the euro has been fluctuating against major global currencies. a. What is the impact of 15% appreciation of all...
-
EuroVirtuals EPS Sensitivity to Exchange Rates (B). Assume a major weather crisis hits Switzerland, reducing its agricultural and food industries and subsequently leading to a macroeconomic...
-
EuroVirtuals Global Taxation and Effective Tax Rate. All MNEs attempt to minimize their global tax liabilities. Return to the original set of baseline assumptions and answer the following questions...
Study smarter with the SolutionInn App