TP-3) A stamping machine being considered for purchase has the following charact
ID: 2497644 • Letter: T
Question
TP-3) A stamping machine being considered for purchase has the following characteristics: Design Life 6 years 3,000,000 units 10,000 hours 300 units/hr Initial Cost (F.O.B.) $1,205,000 Installation Cost $23,450 Salvage Value $90,000 The company combined tax rate is 37.50% The company cost of capital is 8.50% The company MARR is 14.0% The anticipated sale price per unit is Year 1 $9.50 Year 2 $9.03 Year 3 $8.57 Year 4 $8.15 Year 5 $7.74 Year 6 $7.35 The duty cycle for the machine (anticipating 1,920 hours of operation for the plant each year) Year 1 95% Year 2 90% Year 3 86% Year 4 81% Year 5 77% Year 6 74% a) What is the IRR for the investment? b) What is the most advantageous depreciation method to use? c) What is the Present Worth of the machine operation if the total operating cost is $578/hr (labor+material+maintenance+energy) d) Is this machine / product likely to be profitable? TP-3) A stamping machine being considered for purchase has the following characteristics: Design Life 6 years 3,000,000 units 10,000 hours 300 units/hr Initial Cost (F.O.B.) $1,205,000 Installation Cost $23,450 Salvage Value $90,000 The company combined tax rate is 37.50% The company cost of capital is 8.50% The company MARR is 14.0% The anticipated sale price per unit is Year 1 $9.50 Year 2 $9.03 Year 3 $8.57 Year 4 $8.15 Year 5 $7.74 Year 6 $7.35 The duty cycle for the machine (anticipating 1,920 hours of operation for the plant each year) Year 1 95% Year 2 90% Year 3 86% Year 4 81% Year 5 77% Year 6 74% a) What is the IRR for the investment? b) What is the most advantageous depreciation method to use? c) What is the Present Worth of the machine operation if the total operating cost is $578/hr (labor+material+maintenance+energy) d) Is this machine / product likely to be profitable?Explanation / Answer
Yes. Highly profitable
Calculation of Net annual Operting cash flow Year Duty cycle for the machine Hrs. out of 1920 hrs. Units sold @ 300 units/hr. Selling Price/unit Sales Less : Opg.costs@ 578/hr Less: Depn(SLM) Net Taxable Income Tax @ 37.5% After Tax Income Add back Tax on depn Net Op. Cash flow Year 1 95% 1824 547200 9.5 5198400 1054272 189741.7 3954386 1482897 2471490 71153.13 2542643 Year 2 90% 1728 518400 9.03 4681152 998784 189741.7 3492626 1309735 2182891 71153.13 2254045 Year 3 86% 1651.2 495360 8.57 4245235 954393.6 189741.7 3101100 1162912 1938187 71153.13 2009341 Year 4 81% 1555.2 466560 8.15 3802464 898905.6 189741.7 2713817 1017681 1696135 71153.13 1767289 Year 5 77% 1478.4 443520 7.74 3432845 854515.2 189741.7 2388588 895720.5 1492867 71153.13 1564021 Year 6 74% 1420.8 426240 7.35 3132864 821222.4 189741.7 2121900 795712.5 1326187 71153.13 1397341 Year 6 Machine Salvage 90000 33750 56250 56250Related Questions
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