1Proven Specialists is planning to spend $850,000 on equipment that will manufacture fine wire for the electronics
Question:
1Proven Specialists is planning to spend $850,000 on equipment that will manufacture fine wire for the electronics industry. The company will also incur shipping and installation charges of $220,000, and the networking capital will increase to $28,000. The new equipment will replace an existing machine that has a salvage value of $85,000 and a book value of $122,000. Given that Proven Specialists has a current marginal tax rate of 32 percent, what is the net investment?
2. Sancheti Company, a maker of skating gear, is evaluating two alternative presses. Press A costs $85,000, has a 4-year life, and is expected to generate annual cash inflows of $30,500 each of the 4 years. Press B costs $123,500, has an 8-year life, and is expected to generate annual cash inflows of $25,300 each of 8 years. The cost of replacement for Press A is $86,000, and the replacement press will generate cash inflows of $32,200 for another 4 years. Sancheti company uses a 13% cost of capital. Which press should be chosen and why?
Cost management a strategic approach
ISBN: 978-0073526942
5th edition
Authors: Edward J. Blocher, David E. Stout, Gary Cokins