Bets Company is currently considering the purchase of some new machinery. The machinery will have...
Question:
Bets Company is currently considering the purchase of some new machinery. The machinery will have a useful lifetime of 9 years and will cost $600,000 to be paid in the current period. If it decides to purchase it, the company expects that the new machinery will generate an initial cash flow of $100,000 one year from now. The cash flow is expected to grow at the rate of 4% per year for years 2 through 4, but then to decline at the rate of 2% per year for years 5 through 9 at which time the machinery will be scrapped. (Assume that the scrap value is zero.) The appropriate discount rate for this project is 16%.
Is this project worth undertaking? Draw the timeline.
Capital Budgeting:
Several tools can be used to determine whether proposed capital projects are viable. The best methods to use for long-term projects should consider the company's cost of capital and the time value of money.
Answer and Explanation: 1
Become a Study.com member to unlock this answer! Create your account
View this answer
We must calculate the annual cash flows (the time line) and then discount those at 16% to find the answer:
| Y0 | Y1 | Y2 | Y3 | Y4 | Y5 | Y6 | Y7 | Y8 | Y9 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Initial... |
See full answer below.
Ask a question
Our experts can answer your tough homework and study questions.
Ask a question Ask a questionSearch Answers
Learn more about this topic:
Get access to this video and our entire Q&A library
How to Calculate Net Present Value: Definition, Formula & Analysis
from
Chapter 5 / Lesson 20
18K
Learn about what net present value is, how it is calculated both for a lump sum and for a stream of income over multiple years. View some examples on NPV.
Related to this Question
- X Company is considering producing and selling a new product with a useful life of six years. New equipment costing $1,000,000 will have to be purchased. At the end of six years, the equipment can be sold for $20,000. In each of the first three years, cas
- A company is considering the purchase of a new machine that will cost the company $30,000 and will be worth zero at the end of 3 years. Their current tax rate is 20% and they will depreciate the machi
- Vextra Corporation is considering the purchase of new equipment costing $38,000. The projected annual cash inflow is $11,600, to be received at the end of each year. The machine has a useful life of 4
- Vextra Corporation is considering the purchase of new equipment costing $37,000. The projected annual cash inflow is $11,400, to be received at the end of each year. The machine has a useful life of 4
- A company is considering replacing an old piece of machinery, which cost $600,000 and has $350,000 of accumulated depreciation to date, with a new machine that has a purchase price of $545,000. The ol
- A company's old machine, which cost $30,000 and had accumulated depreciation of $21,000, was traded in on a new machine of like purpose having an estimated 20-year life with an invoice price of $40,000. The company also paid $33,000 cash, along with its o
- A company is considering purchasing a new machine costing $10,000. The machine is expected to have a salvage value of $1500 whenever it is retired. The operating disbursements for the first year are e
- A company must decide between two new machines. The first machine has an initial cost of $45,000 with an estimated life of 12 years and a salvage value of $8,000. Its annual operating cost is $4,000.
- A company's old machine that cost $47,000 and had accumulated depreciation of $36,300 was traded in on a new machine having an estimated 20-year life with an invoice price of $57,700. The company also paid $49,300 cash, along with its old machine to acqui
- A company's old machine that cost $56,000 and had accumulated depreciation of $44,400 was traded in on a new machine having an estimated 20-year life with an invoice price of $67,600. The company also paid $57,400 cash, along with its old machine to acqui
- A company's old machine that cost $40,000 and had accumulated depreciation of $22,000 was traded in on a new machine having an estimated 20-year life with an invoice price of $45,000. The company also paid $33,000 cash, along with its old machine to acqui
- A company is planning to purchase a machine that will cost $30,600, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's o
- A company is planning to purchase a machine that will cost $27,600, have a six-year life, and be depreciated over a six-year period with no salvage value. The company expects to sell the machine's out
- 1. A company is planning to purchase a machine that will cost $30,000, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine'
- 1. A company is planning to purchase a machine that will cost $28,800, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine'
- A company is planning to purchase a machine that will cost $32,400, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's o
- A company is planning to purchase a machine that will cost $36,000, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's o
- A company is planning to purchase a machine that will cost $25,200, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's o
- A company is planning to purchase a machine that will cost $31,200, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's o
- A company is planning to purchase a machine that will cost $24,600, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's o
- 1) A company is planning to purchase a machine that will cost $30,600, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine'
- A company is considering replacing an old piece of machinery, which cost $600,000 and has $350,000 of accumulated depreciation to date, with a new machine that has a purchase price of $545,000. The old machine could be sold for $231,000. The annual variab
- A company must decide whether to buy Machine A or Machine B. After 5 years, Machine A will be replaced with another A. The initial cost for Machine A is $12,500, annual maintenance is $1,000, and the salvage value at 5 years is $10,000. Machine B has an i
- A company is considering replacing an old piece of machinery, which cost $105,000 and has $55,000 of accumulated depreciation to date, with a new machine that has a purchase price of $83,000. The old machine could be sold for $56,300. The annual variable
- A company has decided to discontinue as a product produced on a machine purchased 4 years ago at a cost of $70,000. The machine has a current book value of $30,000. Due to technology improved machinery now available in the marketplace, the existing machin
- Machine Replacement Decision : A company is considering replacing an old piece of machinery, which cost $600,500 and has $348,800 of accumulated depreciation to date, with a new machine that costs $48
- Boscan Corporation purchased machinery on January 1, 2014, at a cost of $325,000. The estimated useful life of the machinery is 4 years, with an estimated salvage value at the end of that period of $29,800. The company is considering different depreciatio
- A company is considering the purchase of new equipment for $45,000. The projected annual net cash flows are $19,000. The machine has a useful life
- A company is planning to purchase a machine that will cost $25,800, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A pro
- A company is planning to purchase a machine that will cost $30,600, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A pro
- A company is planning to purchase a machine that will cost $35,400, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A pro
- A company is planning to purchase a machine that will cost $24,000, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine s output of 3,000 units evenly throughout each year. A pro
- A company is planning to purchase a machine that will cost $30,600, have a 6-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A proje
- A corporation sells a machine used for 9 years in its business for $22,000. The machine originally cost $120,000 and was fully depreciated. It gains will be treated as?
- Renfroe Corporation is considering the purchase of a machine that would cost $22,712 and would have a useful life of 5 years. The machine would generate $6,300 of net annual cash inflows per year for
- Able Baker & Company is considering the purchase of a new machine for $50,000. The machine has a tax life of 5 years, and it can be depreciated according to the following rates. The firm expects to operate the machine for 5 years and then sell it for $12,
- The Gage Company purchased a machine that will be depreciated by the straight-line method over its estimated 6-year life. The machine will have no salvage value. It will generate cash inflows of $7,000 each year over the next 6 years. Gage Company's requi
- Boscan Corporation purchased machinery on January 1, 2014, at a cost of $307,000. The estimated useful life of the machinery is 4 years, with an estimated salvage value at the end of that period of $28,600. The company is considering different depreciatio
- The Erley Equipment Company purchased a machine 5 years ago at a cost of $90,000. The machine had an expected life of 10 years at the time of purchase, and it is being depreciated by the straight-line method by $9,000 per year. If the machine is not repla
- X Company bought a machine three years ago for $135,000 but is considering replacing it with a new, more efficient one. The new machine will cost $170,000. Both machines will last for five more years, and both will be worth zero at that time. The current
- A company is planning to purchase a machine that will cost $30,000, have a six year life and be depreciated over a have a the machine's output of 3,000 three-year period with no salvage value. The com
- A company is considering new equipment that costs $190,000. The equipment is useable for five years but requires some replacement parts after year three which costs $11,100. After five years the equ
- Boone Company purchased a piece of machinery by paying $18,000 cash. In addition to the purchase price, the company incurred $800 freight charges. The machine has an estimated useful life of 5 years and will require $600 for insurance over that period. Bo
- A company is considering the purchase of new equipment for $66,000. The projected annual net cash flows are $26,700. The machine has a useful life of 3 years and no salvage value. Management of the co
- Isomer Industrial Training Corporation is considering the purchase of new presentation equipment at a cost of $172,700. The equipment has an estimated useful life of 11 years with an expected salvage
- A company is considering replacing an old piece of machinery, which cost $602,200 and has $351,200 of accumulated depreciation to date, with a new machine that costs $483,800. The old machine could be
- A machine shop has the opportunity to purchase a new machine for $20,000. After carefully studying projected costs and revenues, the company estimates that the new machine will produce a net cash flow of $2,600 annually and will last for ten years. At the
- A company is planning to purchase a machine that will cost $155,000, have a seven-year life, and be depreciated using the straight-line method with no salvage value. The company expects to sell the machine's output of 4,000 units evenly throughout each ye
- Vextra Corporation is considering the purchase of new equipment costing $41,000. The projected annual cash inflow is $12,200, to be received at the end of each year. The machine has a useful life of 4 years and no salvage value. Vextra requires a 12% retu
- A company is considering replacing an old piece of machinery, which cost $597,900 and has $352,300 of accumulated depreciation to date, with a new machine that costs $486,100. The old machine could be
- Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $443,000 or a new model 220 machine costing $404,000 to replace a machine that was purchased 12 years ago for $411,000. The old machine was used to mak
- Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $534,000 or a new model 220 machine costing $422,000 to replace a machine that was purchased 5 years ago for $473,000. The old machine was used to make
- A company with a calendar year-end purchases a machine costing $129,000 on July 1, 2016. The machine is expected to be obsolete after five years (60 months) and, thereafter, no longer useful to the company. The estimated salvage value is $6,000. The compa
- Almendarez Corporation is considering the purchase of a machine that would cost $130,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $19,000. By reduci
- A company has equipment that cost $30,000, with a useful life of 5 years and a residual value of $5,000. After 3 years of use, the company decided to sell the equipment for $15,000. This sale would result in? a. A Gain. b. None of the available choices.
- A company is considering the purchase of a new machine for $62,000. Management predicts that the machine can produce sales of $17,400 each year for the next 10 years. Expenses are expected to include
- A company is considering the purchase of a new machine for $54,400. Management predicts that the machine can produce sales of $37,600 each year for the next 10 years. Expenses are expected to include
- A company is considering the purchase of a new machine for $48,000. Management predicts that the machine can produce sales of $16,000 each year for the next 10 years. Expenses are expected to include
- A company is considering the purchase of a new machine for $44,800. Management predicts that the machine can produce sales of $28,000 each year for the next 10 years. Expenses are expected to include
- A company is considering the purchase of a new machine for $54,000. Management predicts that the machine can produce sales of $16,600 each year for the next 10 years. Expenses are expected to include
- 1.) A company is considering the purchase of a new machine for $52,000. Management predicts that the machine can produce sales of $16,400 each year for the next 10 years. Expenses are expected to incl
- A company is considering the purchase of a new machine for $63,000. Management predicts that the machine can produce sales of $17,500 each year for the next 10 years. Expenses are expected to include
- 1) A company is considering the purchase of a new machine for $66,000. Management predicts that the machine can produce sales of $22,000 each year for the next 10 years. Expenses are expected to inclu
- A company is considering the purchase of a new machine for $53,000. Management predicts that the machine can produce sales of $16,500 each year for the next 10 years. Expenses are expected to includ
- A company is considering the purchase of a new machine for $59,000. Management predicts that the machine can produce sales of $17,100 each year for the next 10 years. Expenses are expected to include
- The Barnum Company is considering purchasing a machine that would cost $220,000. It is expected that the machine will last 6 years and produce net cash inflows of $44,000, $50,000, $40,000, $80,000, $
- The Barnum Company is considering purchasing a machine that would cost $120,000. It is expected that the machine will last 6 years and produce net cash inflows of $24,000, $40,000, $48,000, $8,000, $4
- A company is considering the purchase of a machine that would cost $320,000 and would last for 7 years. At the end of 7 years, the machine would have a salvage value of $51,000. By reducing labor and other operating costs, the machine would provide annual
- Tangen Corporation is considering the purchase of a machine that would cost $394,000 and would last for 6 years. At the end of 6 years, the machine would have a salvage value of $87,000. By reducing labor and other operating costs, the machine would provi
- Assume that Bloomer Company purchased a new machine on January 1, 2016, for $60,900. The machine has an estimated useful life of nine years and a residual value of $6,090. Bloomer has chosen to use th
- Assume that Bloomer Company purchased a new machine on January 1, 2016, for $68,200. The machine has an estimated useful life of nine years and a residual value of $6,820. Bloomer has chosen to use th
- A company is considering replacing an old piece of machinery, which cost $598,000 and has $349,500 of accumulated depreciation to date, with a new machine that has a purch
- Alesi Corporation is considering purchasing a machine that would cost $735,120 and have a useful life of 10 years. The machine would reduce cash operating costs by $102,100 per year. The machine would
- Flounder Corporation purchased machinery on January 1, 2017, at a cost of $220,000. The estimated useful life of the machinery is 4 years, with an estimated salvage value at the end of that period of $20,000. The company is considering different depreciat
- Tangen Corporation is considering the purchase of a machine that would cost $380,000 and would last for 6 years. At the end of 6 years, the machine would have a salvage value of $80,000. By reducing l
- A company is planning to purchase a machine that will cost $57000 with a six-year life and no salvage value. The company expects to sell the machine output of 3,000 units evenly throughout each year.
- A firm is considering the purchase of one of two new machines. The data on each are as follows: Initial cost $3,400 $6,500 Service life 3 Years 6 Years Salvage Value $100 $500 Net operating cost after
- A company with a calendar year-end, purchases a machine costing $144,000 on July 1, 2013. The machine is expected to be obsolete after three years (36 months) and, thereafter, no longer useful to the company. The estimated salvage value is $6,000. The com
- Sibble Corporation is considering the purchase of a machine that would cost $320,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $49,000. By reducing labor and other operating costs, the machine would provi
- Sibble Corporation is considering the purchase of a machine that would cost $440,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $82,000. By reducing labor and other operating costs, the machine would provi
- Sibble Corporation is considering the purchase of a machine that would cost $320,000 and would last for 6 years. At the end of 6 years, the machine would have a salvage value of $50,000. By reducing labor and other operating costs, the machine would provi
- Sibble Corporation is considering the purchase of a machine that would cost $320,000 and would last for 6 years. At the end of 6 years, the machine would have a salvage value of $57,000. By reducing labor and other operating costs, the machine would provi
- Sibble Corporation is considering the purchase of a machine that would cost $380,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $75,000. By reducing labor and other operating costs, the machine would provi
- A manufacturing company is considering investing $600,000 in new equipment with an estimated useful life of 10 years and no salvage value. The equipment is expected to produce $240,000 in cash inflows and $160,000 in cash outflows annually. The company us
- A company is planning to purchase a machine that will cost $24,000, have a 6-year life, and have no salvage value. The company expects to sell the machine s output of 3,000 units evenly throughout eac
- Fabian Company is considering the purchase of a machine that will save the company $4,000 per year in operating costs for a period of 10 years. The most it should pay for the machine is equal to: a. $4,000 times the present value of an ordinary annuity fo
- A company with $900,000 in operating assets is considering the purchase of a machine that costs $85,000 and which is expected to reduce operating costs by $30,000 each year. The payback period for this machine in years is __________.
- Horn Company is considering the purchase of a new machine for $108,000. The machine would replace an old piece of equipment that costs $41,830 per year to operate. The new machine would cost $25,720 per year to operate. The old machine currently in use ca
- A company is considering replacing a painting machine purchased 9 years ago for $700,000. It has a market value today of $40,000. This unit costs $350,000 annually to operate and maintain. A new unit
- Paramount Company is considering purchasing new equipment costing $700,000. Company's management has estimated that the equipment will generate cash flows as follows. Year 1: $200.000 2: 200,000 3:
- A company is considering purchasing a machine that costs $320,000 and is estimated to have no salvage value at the end of its 8-year useful life. If the machine is purchased, annual revenues are expected to be $100,000 and annual operating expenses excl
- A company is considering purchasing a machine that costs $320,000 and is estimated to have no salvage value at the end of its 8-year useful life. If the machine is purchased, annual revenues are expected to be $100,000 and annual operating expenses exclus
- Parkways Inc. is considering the purchase of a new machine. The machine will cost $60,000 to purchase and will generate $15,000 of cash revenues per year for the next 8 years. The machine will cost $1,000 per year to operate & maintain. At the end of its
- A company with a calendar year-end, purchases a machine costing $129,000 on July 1, 2016. The machine is expected to be obsolete after five years (60 months) and, thereafter, no longer useful to the company. The estimated salvage value is $6,000. The comp
- Here are selected 2014 transactions of Cleland Corporation: Jan. 1 - Retired a piece of machinery that was purchased on January 1, 2004. The machine cost $61,870 and had a useful life of 10 years wit
- Sibble Corporation is considering the purchase of a machine that would cost $300,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $47,000. By reducing l
- Sibble Corporation is considering the purchase of a machine that would cost $410,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $58,000. By reducing l
- Sibble Corporation is considering the purchase of a machine that would cost $330,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $50,000. By reducing l
- Able Company must replace one of its current machines with either Machine A or Machine B. The useful life of both machines is seven years. Machine A costs $51,000, and Machine B costs $72,000. Estimated annual cash flows with the two machines are as follo
- A company purchased a machine for $970,000. The machine has a useful life of 12 years and a residual value of $4,500. It is estimated that the machine could produce 1,000,000 units over its useful life. In the first year, 200,000 units were produced. In t
Explore our homework questions and answers library
Browse
by subject