The management of Shiney Company, a not-for profit wholesale distributor of sunt
ID: 2583580 • Letter: T
Question
The management of Shiney Company, a not-for profit wholesale distributor of suntan products, is considering the purchase of a $25,000 machine that would reduce operating costs in its warehouse by $4,000 per year. At the end of the machine's 10-year useful life, it will have no scrap value. The organization's required rate of return is 12%. Ignore income taxes as this is a not-for profit organization. Determine the net present value of the investment in the machine using the model shown in class. .What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine? What OTHER issues should Shiney consider? The Fixem Up Health System required rate of return is 15%. The firm can purchase a new automated phone system for a one time a cost of $40,350. The new service would save $15,000 per year in labor and have would be operational for the next four years with no salvage value. Compute the net present value of the service. Is the service an acceptable investment? Explain. Use one of the decision models presented in the course and go through the decision process step by step Leven Rehabilitation Center, a training service, is investigating the purchase of a new energy-efficient cold coffee bottling machine that has a projected life of 15 years. It is estimated that the machine will save $20,000 per year in cash operating costs .What is the machine's internal rate of return if it costs $111,500 new? Is the machine an acceptable investment? Explain. What risks should be included? Complete the questions using Microsoft Excel and submitExplanation / Answer
Net present value of the investment in Machine
Net present value of the investment in Machine
NPV = Present value of Cash inflow - Present value of cash outflow = 4000 (P/A,12%,10)- 25000 = 22600.89 - 25000 = - 2399.11 Difference between the total, undiscounted cash inflows and cash outflows = 4000 x 10 -25000 = 15000 F Up Health System Net present value of the service NPV = Present value of Cash inflow - Present value of cash outflow = 15000 x (P/A,15%,4) - 40350 = 42824.68 - 40350 = 2474.68 Hence service is an acceptable investment as the NPV is positive. L rehabilitation center : At IRR = Present value of cash inflow = Present value of cash outflow 20000 × (P/A, X%,15) = 111,500 (P/A, X%, 15) = 5.575 From annuity table @ 16% for 15 years, is 5.575 Therefore the IRR is @ 16%. 16% is acceptable rate of return. If wacc is less then the rate of return. Risk in the machine may be due to increase in costs of obsolete.Related Questions
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