The management of Londo Corporation is investigating buying a small used aircraft to use in making airborne inspections of its above-ground pipelines. The aircraft would have a useful life of 5 years. The company uses a discount rate of 14% in its capital budgeting. The net present value of the investment, excluding the intangible benefits, is â$395,850. (Ignore income taxes in this problem)
Click here to view Exhibit 13B-2 to determine the appropriate discount factor(s) using tables. How large would the annual intangible benefit have to be to make the investment in the aircraft financially attractive? (Round discount factor(s) to 3 decimal places and final answer to the nearest dollar amount.)
$395,850
$115,307
$79,170
$55,419
| The management of Londo Corporation is investigating buying a small used aircraft to use in making airborne inspections of its above-ground pipelines. The aircraft would have a useful life of 5 years. The company uses a discount rate of 14% in its capital budgeting. The net present value of the investment, excluding the intangible benefits, is â$395,850. (Ignore income taxes in this problem) |
| Click here to view Exhibit 13B-2 to determine the appropriate discount factor(s) using tables. |
| How large would the annual intangible benefit have to be to make the investment in the aircraft financially attractive? (Round discount factor(s) to 3 decimal places and final answer to the nearest dollar amount.) |
$395,850
$115,307
$79,170
$55,419
Related questions
| Shimano Company has an opportunity to manufacture and sell one of two new products for a five-year period. The companyâs tax rate is 30% and its after-tax cost of capital is 14%. The cost and revenue estimates for each product are as follows: |
| Product A | Product B | |||||
| Initial investment in equipment | $ | 500,000 | $ | 650,000 | ||
| Initial investment in working capital | $ | 95,000 | $ | 70,000 | ||
| Annual sales | $ | 470,000 | $ | 490,000 | ||
| Annual cash operating expenses | $ | 250,000 | $ | 220,000 | ||
| Cost of repairs needed in three years | $ | 55,000 | $ | 80,000 | ||
| The equipment pertaining to both products has a useful life of five years and no salvage value. The company uses the straight-line depreciation method for financial reporting and tax purposes. At the end of five years, each productâs working capital will be released for investment elsewhere within the company. |
| Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables. |
| Required: |
| 1. | What is the net present value of each investment opportunity? (Round discount factor(s) to 3 decimal places. Round your intermediate calculations and answers to nearest whole dollar.) |
| Cardinal Company is considering a project that would require a $2,865,000 investment in equipment with a useful life of five years. At the end of five years, the project would terminate and the equipment would be sold for its salvage value of $300,000. The companyâs discount rate is 12%. The project would provide net operating income each year as follows: |
| Sales | $ | 2,869,000 | ||
| Variable expenses | 1,126,000 | |||
| Contribution margin | 1,743,000 | |||
| Fixed expenses: | ||||
| Advertising, salaries, and other fixed out-of-pocket costs | $ | 709,000 | ||
| Depreciation | 513,000 | |||
| Total fixed expenses | 1,222,000 | |||
| Net operating income | $ | 521,000 | ||
1.
value:
0.66 points
Required information
| Required: |
| 1. | Which item(s) in the income statement shown above will not affect cash flows? (You may select more than one answer. Click the box with a check mark for correct answers and click to empty the box for the wrong answers.) | ||||||||
|
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
2.
value:
0.66 points
Required information
| 2. | What are the projectâs annual net cash inflows? |
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
3.
value:
0.66 points
Required information
Click here to view Exhibit 11B-2, to determine the appropriate discount factor(s) using table.
| 3. | What is the present value of the projectâs annual net cash inflows? (Use the appropriate table to determine the discount factor(s) and final answer to the nearest dollar amount.) |
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
4.
value:
0.66 points
Required information
Click here to view Exhibit 11B-1, to determine the appropriate discount factor(s) using table.
| 4. | What is the present value of the equipmentâs salvage value at the end of five years? (Use the appropriate table to determine the discount factor(s) and final answer to the nearest dollar amount.) |
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
5.
value:
0.66 points
Required information
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.
| 5. | What is the projectâs net present value? (Use the appropriate table to determine the discount factor(s) and final answer to the nearest dollar amount.) |
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
6.
value:
0.66 points
Required information
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.
| 6. | What is the project profitability index for this project? (Use the appropriate table to determine the discount factor(s) and final answer to 2 decimal places.) |
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
7.
value:
0.66 points
Required information
| 7. | What is the projectâs payback period? (Round your answer to 2 decimal places.) |
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
8.
value:
0.66 points
Required information
| 8. | What is the projectâs simple rate of return for each of the five years? (Round your answer to 2 decimal places. (i.e 0.1234 should be entered as 12.34.)) |
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
9.
value:
0.66 points
Required information
| 9. | If the companyâs discount rate was 14% instead of 12%, would you expect the project's net present value to be higher than, lower than, or the same? | ||||||
|
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
10.
value:
0.66 points
Required information
| 10. | If the equipmentâs salvage value was $500,000 instead of $300,000, would you expect the projectâs payback period to be higher than, lower than, or the same? | ||||||
|
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
11.
value:
0.66 points
Required information
| 11. | If the equipmentâs salvage value was $500,000 instead of $300,000, would you expect the project's net present value to be higher than, lower than, or the same? | ||||||
|
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
12.
value:
0.66 points
Required information
| 12. | If the equipmentâs salvage value was $500,000 instead of $300,000, what would be the projectâs simple rate of return? (Round your answer to 2 decimal places. (i.e 0.1234 should be entered as 12.34.)) |
`
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
13.
value:
0.66 points
Required information
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.
| 13. | Assume a postaudit showed that all estimates (including total sales) were exactly correct except for the variable expense ratio, which actually turned out to be 50%. What was the projectâs actual net present value? (Negative amount should be indicated by a minus sign. Use the appropriate table to determine the discount factor(s), other intermediate calculations and final answer to the nearest whole dollar.) |
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
14.
value:
0.66 points
Required information
| 14. | Assume a postaudit showed that all estimates (including total sales) were exactly correct except for the variable expense ratio, which actually turned out to be 50%. What was the projectâs actual payback period? (Round your answer to 2 decimal places.) |
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
15.
value:
0.76 points
Required information
| 15. | Assume a postaudit showed that all estimates (including total sales) were exactly correct except for the variable expense ratio, which actually turned out to be 50%. What was the projectâs actual simple rate of return? (Round your answer to 2 decimal places. (i.e 0.1234 should be entered as 12.34.) Exhibit 11b-1 http://lectures.mhhe.com/connect/0078025419/Exhibit/Exhibit%2011B-1.JPG Exhibit 11b-2 http://lectures.mhhe.com/connect/0078025419/Exhibit/Exhibit%2011B-2.JPG |
40.
Wendellâs Donut Shoppe is investigating the purchase of a new $44,300 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $6,000 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 2,000 dozen more donuts each year. The company realizes a contribution margin of $2.00 per dozen donuts sold. The new machine would have a six-year useful life.
Click here to view Exhibit 8B-1 and Exhibit 8B-2, to determine the appropriate discount factor(s) using tables.
Required:
1. What would be the total annual cash inflows associated with the new machine for capital budgeting purposes?
| Annual savings in part-time help | $6,000 | |
| Added contribution margin from expanded sales | 4,000 | |
| Annual cash inflows | $10,000 | |
2. Find the internal rate of return promised by the new machine. (Round your 'IRR' answer to nearest whole percentage.)
| ||||||||||||||||||||||||||||||||||||||||||
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3. In addition to the data given previously, assume that the machine will have a $20,000 salvage value at the end of six years. Under these conditions, compute the internal rate of return. (Round your final answer to nearest whole percentage.)
internal rate of return __________%
