2. Acme Metals needs a new machine to make (um, let's say) rebars for an eight-year...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
2. Acme Metals needs a new machine to make (um, let's say) rebars for an eight-year project. The receive the following quote from a supplier of rebar machines: They will sell Acme a new rebar machine today for $600,000 and agree to buy it back for the same price at the end of Year 4 if Acme agrees to buy a new machine then, at a price of $1,000,000. Acme estimates it can sell the second machine at the end of the project for $500,000. Both machines will use the MACRS 10-year depreciation schedule. Inflation is expected to be 5% per year over the life of the project. The machine will increase revenues by $100,000 in year 1 and rise by the inflation rate each year after. The machine is energy intensive and is estimated to increase electricity costs $30,000 in year 1 and rise by the inflation rate each year after. However, due to a more efficient design, there is less waste of metal, and the amount of inventory needed at the beginning of the project for year 1 production is reduced by $40,000 and the savings rise by the inflation rate each year after. If Acme buys the machines, they will finance 100% of it with a four-year loan at the time of the machine purchase (ie two separate loans, one for each machine). The interest rate on the loan is 12%. Acme's Minimum Acceptable Rate of Return (MARR) is equal to the cost of capital. Acme's tax rate on all income is 40%. a. Construct the Change in Working Capital Statement. Assume working capital is the only needed for inventory (ie not for electricity). b. Construct the Income Statement. c. Construct the Statement of Cash Flows. (10) (15) (15) d. Find the Internal Rate of Return (IRR) and determine whether Acme should buy the machines. Note: report IRR to two decimal places. (10) 2. Acme Metals needs a new machine to make (um, let's say) rebars for an eight-year project. The receive the following quote from a supplier of rebar machines: They will sell Acme a new rebar machine today for $600,000 and agree to buy it back for the same price at the end of Year 4 if Acme agrees to buy a new machine then, at a price of $1,000,000. Acme estimates it can sell the second machine at the end of the project for $500,000. Both machines will use the MACRS 10-year depreciation schedule. Inflation is expected to be 5% per year over the life of the project. The machine will increase revenues by $100,000 in year 1 and rise by the inflation rate each year after. The machine is energy intensive and is estimated to increase electricity costs $30,000 in year 1 and rise by the inflation rate each year after. However, due to a more efficient design, there is less waste of metal, and the amount of inventory needed at the beginning of the project for year 1 production is reduced by $40,000 and the savings rise by the inflation rate each year after. If Acme buys the machines, they will finance 100% of it with a four-year loan at the time of the machine purchase (ie two separate loans, one for each machine). The interest rate on the loan is 12%. Acme's Minimum Acceptable Rate of Return (MARR) is equal to the cost of capital. Acme's tax rate on all income is 40%. a. Construct the Change in Working Capital Statement. Assume working capital is the only needed for inventory (ie not for electricity). b. Construct the Income Statement. c. Construct the Statement of Cash Flows. (10) (15) (15) d. Find the Internal Rate of Return (IRR) and determine whether Acme should buy the machines. Note: report IRR to two decimal places. (10)
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
First United Bank Inc. is evaluating three capital investment projects by using the net present value method. Relevant data related to the projects are summarized as follows: Instructions 1. Assuming...
-
Find V 0 in the network in figure using? (a) Loop analysis? (b) Superposition and? (c) Thevenin?s Theorem. -j10 2 j1 j2 2 20 A 12 20 V 4
-
What steps should firms follow to implement the recommendations listed above?
-
Find the number of games in a single round-robin tournament for each of the following numbers of teams: 1. 5 teams 2. 12 teams 3. 25 teams
-
Kegler Company has set the following standard costs per unit for the product it manufactures. Direct materials (15 Ibs. @ $ 4 per Ib.) . . . . . . . . . . . $ 60.00 Direct labor (3 hrs. @ $ 15 per...
-
1. (10 pts) Find the derivative for each of the following functions, simplify if possible. (a) f(x) = (23 - In(a)) (723 + cos(x) ) (b) g(x) = tan(x)2. (10 pts) Consider the graph of f(a) below Sketch...
-
The Rolling Rock Restaurant records its payroll weekly for salaried and hourly rate employees separately. Jessica Talbot and Kristen Millar are salaried employees. There annual salaries are...
-
How can accounting firms overcome the dangers associated with interrelated aspects of the audit being completed in isolation?
-
Demonstrate the way in which marginal analysis can be used when making short-term decisions.
-
Understatement tests are usually difficult to design because of the problems of identifying an appropriate reciprocal population. This is demonstrated in the audit of sales. Should auditors abandon...
-
In Exercises 11 and 12, (a) find the quartiles, (b) find the interquartile range, and (c) identify any outliers. 22 25 22 24 20 24 19 22 29 21 21 20 23 25 23 23 21 25 23 22
-
To what extent does a lack of usable evidence pose problems for the auditor?
-
I need typed answer with explanation don't use AI BOT otherwise downvote.
-
For the following exercises, write the polynomial function that models the given situation. Consider the same rectangle of the preceding problem. Squares of 2x by 2x units are cut out of each corner....
-
The list that follows itemizes Furlong Corporations transactions. Identify each as (a) an operating activity, (b) an investing activity, (c) a financing activity, (d) a noncash transaction, or (e)...
-
Inventory Costing Methods} Neyman Ltd. has the following diata for purchases and sales of inventory: All sales were made at a sales price of \(\$ 450\) per unit. Assume that Neyman uses a perpetual...
-
Inter-Finance Corporation had a net income of $16,500 during 20x7. During the year, the company had depreciation expense of $7,000. Accounts Receivable increased by $5,500, and Accounts Payable...
Study smarter with the SolutionInn App