168) Boxton Corporation’s required rate of return is 12%. The company is considering the
purchase of a new machine that will save $20,000 per year in cash operating costs. The machine
will cost $128,360 and will have a 10-year useful life with zero salvage value. Straight-line
depreciation will be used. (Ignore income taxes.)
See separate Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s)
using the tables provided.
Required:
Compute the machine’s internal rate of return. Would you recommend purchase of the machine?
169) The management of Harling Corporation is considering the purchase of a machine that would
cost $90,504 and would have a useful life of 5 years. The machine would have no salvage value.
The machine would reduce labor and other operating costs by $27,000 per year. (Ignore income
taxes.)
See separate Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s)
using the tables provided.
Required:
Determine the internal rate of return on the investment in the new machine.
170) The management of Crosson Corporation is investigating the purchase of a new satellite
routing system with a useful life of 9 years. The company uses a discount rate of 17% in its capital
budgeting. The net present value of the investment, excluding its intangible benefits, is -$173,055.
(Ignore income taxes.)
See separate Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s)
using the tables provided.
Required:
How large would the additional cash flow per year from the intangible benefits have to be to make
the investment in the automated equipment financially attractive?
171) Devon Corporation uses a discount rate of 8% in its capital budgeting. Partial analysis of an
investment in automated equipment with a useful life of 8 years has thus far yielded a net present
value of -$496,541. This analysis did not include any estimates of the intangible benefits of
automating this process nor did it include any estimate of the salvage value of the equipment.
(Ignore income taxes.)
See separate Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s)
using the tables provided.
Required:
a. Ignoring any salvage value, how large would the additional cash flow per year from the
intangible benefits have to be to make the investment in the automated equipment financially
attractive?
b. Ignoring any cash flows from intangible benefits, how large would the salvage value of the
automated equipment have to be to make the investment in the automated equipment financially
attractive?
172) The management of an amusement park is considering purchasing a new ride for $80,000 that
would have a useful life of 10 years and a salvage value of $10,000. The ride would require annual
operating costs of $32,000 throughout its useful life. The company’s discount rate is 9%.
Management is unsure about how much additional ticket revenue the new ride would
generate-particularly since customers pay a flat fee when they enter the park that entitles them to
unlimited rides. Hopefully, the presence of the ride would attract new customers. (Ignore income
taxes.)
See separate Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s)
using the tables provided.
Required:
How much additional revenue would the ride have to generate per year to make it an attractive
investment?
173) Chipps Corporation uses a discount rate of 9% in its capital budgeting. Management is
considering an investment in telecommunications equipment with a useful life of 5 years.
Excluding the salvage value of the equipment, the net present value of the investment in the
equipment is −$530,985. (Ignore income taxes.)
See separate Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s)
using the tables provided.
Required:
How large would the salvage value of the telecommunications equipment have to be to make the
investment in the telecommunications equipment financially attractive?
174) Choudhury Corporation is considering the following three investment projects (Ignore
income taxes.):
Project H
Project I
Project J
Investment required
$
11,000
$
53,000
$
Present value of cash inflows
$
12,980
$
61,480
$
The only cash outflows are the initial investments in the projects.
Required:
Rank the investment projects using the project profitability index.
Project H
Investment required (a)
$
)
$
(53,000
)
$
(89,000
)
Present value of cash inflows
61,480
96,120
Net present value (b)
$
$
$
Project profitability index (b) ÷ (a)
Ranked by project profitability index
175) The management of Winstead Corporation is considering the following three investment
projects (Ignore income taxes.):
Project Q
Project R
Project S
Investment required
$
14,000
$
48,000
$
Present value of cash inflows
$
14,140
$
54,720
$
The only cash outflows are the initial investments in the projects.
Required:
Rank the investment projects using the project profitability index.
Investment required (a)
$
(14,000
)
$
(48,000
)
$
(74,000
)
Present value of cash inflows
Net present value (b)
$
$
$
Project profitability index (b) ÷ (a)
Ranked by project profitability index
176) The management of Nixon Corporation is investigating purchasing equipment that would
cost $518,000 and have a 7 year life with no salvage value. The equipment would allow an
expansion of capacity that would increase sales revenues by $364,000 per year and cash operating
expenses by $211,000 per year. (Ignore income taxes.)
Required:
Determine the simple rate of return on the investment to the nearest tenth of a percent.
177) Russnak Corporation is investigating automating a process by purchasing a new machine for
$198,000 that would have a 9 year useful life and no salvage value. By automating the process, the
company would save $68,000 per year in cash operating costs. The company’s current equipment
would be sold for scrap now, yielding $18,000. The annual depreciation on the new machine
would be $22,000. (Ignore income taxes.)
Required:
Determine the simple rate of return on the investment to the nearest tenth of a percent.
178) Ducey Corporation is contemplating purchasing equipment that would increase sales
revenues by $79,000 per year and cash operating expenses by $27,000 per year. The equipment
would cost $150,000 and have a 6 year life with no salvage value. The annual depreciation would
be $25,000. (Ignore income taxes.)
Required:
Determine the simple rate of return on the investment to the nearest tenth of a percent.
179) The management of Schenk Corporation is investigating automating a process by replacing
old equipment by a new machine. The old equipment would be sold for scrap now for $13,000.
The new machine would cost $648,000, would have a 9 year useful life, and would have no
salvage value. By automating the process, the company would save $186,000 per year in cash
operating costs. (Ignore income taxes.)
Required:
Determine the simple rate of return on the investment to the nearest tenth of a percent.