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Unformatted text preview: 0.09100000 25000 25000 25000 25000 25000 ($2,758.72) Step 1: Compute PV Step 2: Calculate Annuity Factor (Chp 6) of each Machine Step 3: Calculate EAC Machine 1: 117.36 * 1.7355 = 67.26 Machine 2: 159.89 * 2.4869 = 64.29 Conclusion Machine B is more effective Machine A costs $100 to buy and $10 per year to operate. It wears out and must be replaced every two Machine B costs $140 to buy and $8 per year to operate. It lasts for three years and must then be replac Ignoring taxes, which one should we choose if we use a 10 percent discount rate? Machine A: PV= 100 + (10/1.1) + (10/1.1 2 ) = $117.36 Machine B: PV= 140 + (8/1.1) + (8/1.1 2 ) + (8/1.1 3 ) = $159.89 Machine 1: (1 – (1/1.1 2 )) / .1 = 1.7355 Machine 2: (1 – (1/1.1 3 ) / .1 = 2.4869 Your firm is contemplating the purchase of a new $1,628,000 computerbased order entry system. The s will be depreciated straightline to zero over its 5year life. It will be worth $158,400 at the end of that tim will save $633,600 before taxes per year in order processing costs and you will be able to reduce workin by $115,764 (this is a onetime reduction). The net working capital will return to its original level when th ends. The tax rate is 35 percent. What is the internal rate of return for this project? Northern Railway is considering a project which will produce annual sales of $975,000 and increase cash expenses by $859,000. If the project is implemented, taxes will increase from $141,000 to $154,000 and depreciation will increase from $194,000 to $272,000. The company is debtfree. What is the amount of the operating cash flow using the topdown approach? Top Down= 975000 – 859000  (272000194000) = 103000 years. ced. system e. You ing capital he project Q= (FC + D) / (P  v) Answer 23970 Base Best Worst (+/) Sales Units 8000 8160 7840 0.02 Var Cost/Unit 11 10.45 11.55 0.05 Fixed Costs 287,000 272650 301350 0.05 Dep 68000 68000 68000 68000 Tax Rate 0.32 0.32 0.32 0.32 Sales Price 64 65.92 62.08 0.03 Sales Rev 486707.20 Var Costs 717.02 Fix Costs 301350 Dep 68000 Ebit 116640.18 Taxes 37324.86 N/I 79315.32 Sales Price 38 Q= (FC + OCF) / (Pv) Answer 2651 VC 18.5 FC 32000 OCF 19700 Init Investment 460000 Price 34 Var Cost 19 FC 188600 Units Sold 90528 A project has a unit price of $5,000, a variable cost per unit of $4,000, fixed costs of $17,000,000, and depreciation expense of $6,970,000. What is the accounting breakeven quantity?...
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This note was uploaded on 07/31/2011 for the course FIN 550 taught by Professor Rajneeshsharma during the Summer '11 term at Saint Joseph's University.
 Summer '11
 RajneeshSharma

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