You are the financial manager for a large organization, and two managers have presented the following...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You are the financial manager for a large organization, and two managers have presented the following proposals. Each proposal requires a $100,000 investment, and the cost of capital (discount rate) for your organization is 5%. Alternative 1: a new machine costing $100,000 will generate annual labour cost savings of $25,000 for 10 years. Alternative 2: a new machine costing $100,000 will generate uneven cost savings as follows: Years 1 2 3 4 5 6 40,000 50,000 30,000 50,000 20,000 10,000 Required: Calculate 1) Payback Period. 2) Net Present Value 3) Internal Rate of Return 4) Profitability Index For each of the alternatives. Which proposal would you recommend? You are the financial manager for a large organization, and two managers have presented the following proposals. Each proposal requires a $100,000 investment, and the cost of capital (discount rate) for your organization is 5%. Alternative 1: a new machine costing $100,000 will generate annual labour cost savings of $25,000 for 10 years. Alternative 2: a new machine costing $100,000 will generate uneven cost savings as follows: Years 1 2 3 4 5 6 40,000 50,000 30,000 50,000 20,000 10,000 Required: Calculate 1) Payback Period. 2) Net Present Value 3) Internal Rate of Return 4) Profitability Index For each of the alternatives. Which proposal would you recommend?
Expert Answer:
Answer rating: 100% (QA)
To evaluate the two proposals lets calculate the payback period net present value NPV internal rate of return IRR and profitability index PI for each ... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
Posted Date:
Students also viewed these accounting questions
-
Ques 1: What is the major complaint by firms concerning the Sarbanes-Oxley act of 2012? A. the legislative maximum allowable compensation for a CEO. B. the legal requirement to disclose project...
-
You are the financial manager for a healthcare organization that is considering the purchase of a building costing $3,000,000. The resale value would be $4,000,000 in 5 years when the organization...
-
You are the financial manager for a large corporation The company has decided to build a new distribution center The cost is estimated at 10 million dollars What financing options would you use to...
-
The curve known as the Bernoulli spiral (Figure 7) has parametrization r(t) = (e t cos 4 t , e t sin 4t). (a) Evaluate s(1) = ||' (u) du. It is convenient to take lower limit -co because _lim_r(1) =...
-
INCOME STATEMENT WITH DEPARTMENTAL GROSS PROFIT AND OPERATING INCOME Bacon and Hand Distributors has divided its business into two departments: retail sales and wholesale sales. The following...
-
Modify the program in Fig. 3.10 to validate its inputs. For any input, if the value entered is other than 1 or 2, keep looping until the user enters a correct value. Fig. 3.10 Enter result (1= Enter...
-
What is a compilation unit?
-
You are the manager of a paper mill and have been subpoenaed to appear before a joint session of the Senate Consumer Affairs and the Senate Environmental subcommittees. The Consumer Affairs...
-
Explain an existing healthcare initiative that address the disparities veterans face with access to mental health. Explain specific goals of the specific initiative to address the gap veterans face...
-
The partnership of Bramble, Sunland, and Coronado engaged you to adjust its accounting records and convert them uniformly to the accrual basis in anticipation of admitting Kerns as a new partner....
-
Larkspur Inc. is contemplating a capital investment of $ 78000 . The cash flows over the projects four years are: Expected Annual Expected Annual Year Cash Inflows Cash Outflows 1 $ 38000 $ 12000 2...
-
Consider the subspace W = {(x, y, z) | x+2y-2=0} of the vector space R. Let P: R3 R denote the orthogonal projection of R onto W. (a) Write the formula for P(v) (the image under P of a general vector...
-
A 0.47F and a 0.71 F capacitor are connected in series to a 12 V battery.
-
what are the common barriers of communication and how to overcome them? Explain
-
what is the significance of tailoring the types of informationrequired for each of the three project levels and how does it influence decisionmaking and overall project success?
-
what is the term for a behavior that serves the same functional outcome as the challenging behavior?
-
If, in a sample of n = 20 selected from a normal population, X = 60 and S = 8, what are the critical values of t if the level of significance, , is 0.10, the null hypothesis, H0, is =50, and the...
-
-x/2 x/4 If A = -x/2 and A-1 =6 then x equals
-
Myra Breck must choose between two bonds: Bond A pays $100 annual interest with semiannual payment and has a market value of $800. It has 10 years to maturity. Bond B pays $100 annual interest with...
-
What procedure(s) would you recommend for a multinational company in studying exposure to political risk? What actual strategies can be used to guard against such risk?
-
River Babylon, an archaeology professor, invests $65,000 in a parcel of land that is expected to increase in value by 8 percent per year for the next five years. He will take the proceeds and provide...
-
Explain how budgeting helps in running a business efficiently and effectively.
-
The best way to conduct performance evaluation is to determine broad business goals and prepare a financial plan in which senior management is responsible for the whole business. Discuss.
-
Read the following and answer the questions below. The costs of hosting the Olympic Games During Olympic years there is a tangible sense of anticipation for many people who enjoy watching or...
Study smarter with the SolutionInn App