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11–196
106.
Cascade, Inc., has assembled the estimates shown below relating to a proposed new
product. These estimates are based on a 5-year project life, at the end of which the new
equipment would be sold, working capital would revert to other uses in the company, and
the product would be discontinued. Cascade uses a discount rate of 18%.
Annual cash sales
$420,000
Annual out-of-pocket cash expenses
$330,000
Annual depreciation on new equipment
$36,000
Initial cost of new equipment
$200,000
Salvage value of equipment in 5 years
$20,000
Working capital requirement
$140,000
Required:
Compute the net present value of the new product.
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107.
Janes, Inc., is considering the purchase of a machine that would cost $400,000 and would
last for 5 years, at the end of which, the machine would have a salvage value of $67,000.
The machine would reduce labor and other costs by $109,000 per year. Additional working
capital of $4,000 would be needed immediately, all of which would be recovered at the end
of 5 years. The company requires a minimum pretax return of 12% on all investment
projects.
Required:
Determine the net present value of the project. Show your work!
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108.
Weilbacher Corporation is considering the purchase of a machine that would cost
$240,000 and would last for 8 years. At the end of 5 years, the machine would have a
salvage value of $50,000. The machine would reduce labor and other costs by $72,000 per
year. The company requires a minimum pretax return of 16% on all investment projects.
Required:
Determine the net present value of the project. Show your work!
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109.
Vernon Corporation has been offered a 5-year contract to supply a part for the military.
After careful study, the company has developed the following estimated data relating to
the contract:
Cost of equipment needed
$300,000
Working capital needed
$50,000
Annual cash receipts from the delivery of parts, less cash operating costs
$70,000
Salvage value of equipment at end of the contract
$5,000
Initial investment
Working capital
($50,000)
$50,000
Salvage value
It is not expected that the contract would be extended beyond the initial contract period.
The company’s discount rate is 10%.
Required:
Use the net present value method to determine if the contract should be accepted.
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110.
The following data concern an investment project:
Investment in equipment
$100,000
Annual net cash inflows
$24,000
Salvage value of the equipment
$10,000
Working capital required
$50,000
Life of the project
5 years
Required rate of return
10%
Initial investment
Working capital
Salvage value
The working capital will be released for use elsewhere at the conclusion of the project.
Required:
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111.
Juliar Inc. has provided the following data concerning a proposed investment project:
Initial investment
$160,000
Life of the project
4 years
Annual net cash inflows
$50,000
Salvage value
$24,000
Initial investment
Salvage value
Net present value
The company uses a discount rate of 12%.
Required:
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