Most businesses produce cash inflows on a daily basis, rather than only once a year at...

     

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Most businesses produce cash inflows on a daily basis, rather than only once a year at the end of the year. What should we do in capital planning to account for this fact? Should we estimate daily project cash flows and then use those estimates in the analysis? Is it possible that our findings will be skewed if we don't? If this is the case, would the NPV be slanted upward or downward? Give an example. Ernest is contemplating acquiring the Steamer VX2 3000, a higher-end steamer that costs $12,000 and has an expected useful life of 6 years with a salvage value of $1,500. The Steamer VX2 3000 is a higher-end steamer that costs $12,000 and has an estimated salvage value of $1,500. steamer the MACRS. Because the new steamer is quicker and allows for more production, revenues would increase by $2,000 per year; yet, because of the new machine's far improved efficiency, operating cost would be reduced by $1,900 per year. For the new machine to be able to handle the increased sales, stocks would need to be increased by $2,900, while accounts payable would need to be increased by $700 at the same time. Ernest's marginal federal-plus-state tax rate is 40 percent. Is it necessary to replace the old steamer? Most businesses produce cash inflows on a daily basis, rather than only once a year at the end of the year. What should we do in capital planning to account for this fact? Should we estimate daily project cash flows and then use those estimates in the analysis? Is it possible that our findings will be skewed if we don't? If this is the case, would the NPV be slanted upward or downward? Give an example. Ernest is contemplating acquiring the Steamer VX2 3000, a higher-end steamer that costs $12,000 and has an expected useful life of 6 years with a salvage value of $1,500. The Steamer VX2 3000 is a higher-end steamer that costs $12,000 and has an estimated salvage value of $1,500. steamer the MACRS. Because the new steamer is quicker and allows for more production, revenues would increase by $2,000 per year; yet, because of the new machine's far improved efficiency, operating cost would be reduced by $1,900 per year. For the new machine to be able to handle the increased sales, stocks would need to be increased by $2,900, while accounts payable would need to be increased by $700 at the same time. Ernest's marginal federal-plus-state tax rate is 40 percent. Is it necessary to replace the old steamer?

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When dealing with businesses that generate daily cash flows its important to estimate daily project ... View the full answer