Tough Ltd is a building company looking at purchasing a new forklift as its business is...

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Tough Ltd is a building company looking at purchasing a new forklift as its business is expanding. The company has a capital budget of $180,000 and is currently considering one of two forklifts saunas on the market, the “Lift" selling at $160,000 and the "Hulk" selling at $130,000. Ignore depreciation in calculating your answer. Additional Information: ● ● ● ● ● ● ● The Lift will require a yearly maintenance of $3,300 over its life span. The Lift requires a special connection point to be added to the wall of the shed. It's a one off cost totalling $5000 Both machines have a life span and warranty of 5 years. The Hulk has recently won the best designed forklift award The company favours projects that exhibit an accounting rate of return of at least 10% The Hulk is manufactured in Germany and would require a $5,500 shipping costs. If the company proceeds with the capital purchase of the new machine called "Hulk" they are expecting to make at least one person redundant saving the company $1,500 per year in wages. The company is required to spend $1000 on stationary yearly The Lift runs on a plug in as it's electric and hence will save the business $1200 in petrol bills p/a. The company expects they could sell the "the Hulk" in the 7th year for $20,000 The after-tax cash inflows are as follows: Lift $ 45,000 45,000 Year 1 2 3 4 5 45,000 45,000 45,000 Hulk$ 30,000 55,000 70,000 65,000 90,000 Required: (NOTE: PV Tables can be found on the next page) a) Calculate the payback period of each machine. b) Calculate the Net Present Value for each machine. The required rate of return is 14%. c) Based on your calculations in part (a) and part (b), identify which machine the company should invest in and provide TWO reasons why. d) Calculate the accounting rate of return just for the Lift. e) Based on your calculations in part (d), should the project be accepted? f) Identify TWO non-financial factors that the company should consider when making their capital expenditure decision. Tough Ltd is a building company looking at purchasing a new forklift as its business is expanding. The company has a capital budget of $180,000 and is currently considering one of two forklifts saunas on the market, the “Lift" selling at $160,000 and the "Hulk" selling at $130,000. Ignore depreciation in calculating your answer. Additional Information: ● ● ● ● ● ● ● The Lift will require a yearly maintenance of $3,300 over its life span. The Lift requires a special connection point to be added to the wall of the shed. It's a one off cost totalling $5000 Both machines have a life span and warranty of 5 years. The Hulk has recently won the best designed forklift award The company favours projects that exhibit an accounting rate of return of at least 10% The Hulk is manufactured in Germany and would require a $5,500 shipping costs. If the company proceeds with the capital purchase of the new machine called "Hulk" they are expecting to make at least one person redundant saving the company $1,500 per year in wages. The company is required to spend $1000 on stationary yearly The Lift runs on a plug in as it's electric and hence will save the business $1200 in petrol bills p/a. The company expects they could sell the "the Hulk" in the 7th year for $20,000 The after-tax cash inflows are as follows: Lift $ 45,000 45,000 Year 1 2 3 4 5 45,000 45,000 45,000 Hulk$ 30,000 55,000 70,000 65,000 90,000 Required: (NOTE: PV Tables can be found on the next page) a) Calculate the payback period of each machine. b) Calculate the Net Present Value for each machine. The required rate of return is 14%. c) Based on your calculations in part (a) and part (b), identify which machine the company should invest in and provide TWO reasons why. d) Calculate the accounting rate of return just for the Lift. e) Based on your calculations in part (d), should the project be accepted? f) Identify TWO non-financial factors that the company should consider when making their capital expenditure decision.

Answer rating: 100% (QA)

a Calculate the payback period for each machine For the Hulk Initial Investment 130000 Machine cost 5500 Shipping 135500 Yearly Cash Inflows 30000 Year 1 45000 Year 2 45000 Year 3 70000 Year 4 65000 Y... View the full answer