Exercise 24-5 Eisler Corporation is involved in the business of injection moldin
ID: 2422886 • Letter: E
Question
Exercise 24-5 Eisler Corporation is involved in the business of injection molding of plastics. It is considering the purchase of a new computer-aided design and manufacturing machine for $442,400. The company believes that with this new machine it will improve productivity and increase quality, resulting in an increase in net annual cash flows of $116,898 for the next 6 years. Management requires a 10% rate of return on all new investments. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Calculate the internal rate of return on this new machine. (Round answer to 0 decimal places, e.g. 10.) Internal rate of return % Should the investment be accepted? The investment shouldshould not be accepted.
Exercise 24-8
Pierre’s Hair Salon is considering opening a new location in French Lick, California. The cost of building a new salon is $265,600. A new salon will normally generate annual revenues of $59,171, with annual expenses (including depreciation) of $40,300. At the end of 15 years the salon will have a salvage value of $77,500.
Calculate the annual rate of return on the project. (Round answer to 0 decimal places, e.g. 125.)
Exercise 24-10
Warning
Don't show me this message again for the assignment
Ok
Cancel
Warning
Don't show me this message again for the assignment
Ok
Cancel
Link to Text
Link to Text
Annual rate of return%
Exercise 24-10
Vilas Company is considering a capital investment of $191,800 in additional productive facilities. The new machinery is expected to have a useful life of 5 years with no salvage value. Depreciation is by the straight-line method. During the life of the investment, annual net income and net annual cash flows are expected to be $12,270 and $49,490, respectively. Vilas has a 12% cost of capital rate, which is the required rate of return on the investment.Click here to view the factor table.
(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Warning
Don't show me this message again for the assignment
Ok
Cancel
Compute the cash payback period. (Round answer to 1 decimal place, e.g. 10.5.)Cash payback period years
Compute the annual rate of return on the proposed capital expenditure. (Round answer to 1 decimal place, e.g. 20.5.)
Annual rate of return %
Warning
Don't show me this message again for the assignment
Ok
Cancel
Link to Text
Link to Text
Using the discounted cash flow technique, compute the net present value. (If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round answer for present value to 0 decimal places, e.g. 125.)Net present value
Explanation / Answer
1
Calculation of internal rate of return on the new machine:
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Cost of New Machine
$ (442,400)
Increase in net annual cash flows
$ 116,898
$ 116,898
$ 116,898
$ 116,898
$ 116,898
$ 116,898
Net Cash Flows
$ (442,400)
$ 116,898
$ 116,898
$ 116,898
$ 116,898
$ 116,898
$ 116,898
IRR (Using IRR Excel formula)
15%
2
Evaluation of Investment:
IRR of the investment
15%
Required rate
10%
Since the required rate is less than the IRR, the investment should be accepted
1
Calculation of internal rate of return on the new machine:
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Cost of New Machine
$ (442,400)
Increase in net annual cash flows
$ 116,898
$ 116,898
$ 116,898
$ 116,898
$ 116,898
$ 116,898
Net Cash Flows
$ (442,400)
$ 116,898
$ 116,898
$ 116,898
$ 116,898
$ 116,898
$ 116,898
IRR (Using IRR Excel formula)
15%
2
Evaluation of Investment:
IRR of the investment
15%
Required rate
10%
Since the required rate is less than the IRR, the investment should be accepted
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.