Calculate the annuity that has same present value

Assignment Help Financial Management
Reference no: EM13809565

Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $1,830,000 and will last for 5 years. Variable costs are 37 percent of sales, and fixed costs are $152,000 per year. Machine B costs $4,440,000 and will last for 7 years. Variable costs for this machine are 27 percent of sales and fixed costs are $122,000 per year. The sales for each machine will be $8.88 million per year. The required return is 10 percent and the tax rate is 35 percent. Both machines will be depreciated on a straight-line basis.

Required:

If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine A and B? (Do not round your intermediate calculations.) HINT: In EAC problems you first need to find the NPV of the project. Then calculate the annuity (annual cost) that has the same present value as that NPV.

Reference no: EM13809565

Questions Cloud

Identify each type of energy source : Identify each type of energy source and its relative abundance and environmental impact.
Sharing information across groups : The planning for the community building session is almost complete. The last details are how to conduct the plenary sessions for sharing information across groups to develop key priorities and themes that will need to be addressed.
Write a summary of the video four women of egypt : Write a summary of the video "Four Women of Egypt".
Find out about the cryptosystems and protocols : Go to a popular online electronic commerce site like Amazon.com. What can you find out about the cryptosystems and protocols in use to protect this transaction
Calculate the annuity that has same present value : Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $1,830,000 and will last for 5 years. Variable costs are 37 percent of sales, and fixed costs are $152,000 per year. Machine B costs $4,440,..
Planning for the community building : The planning for the community building session is almost complete. The last details are how to conduct the plenary sessions for sharing information across groups to develop key priorities and themes that will need to be addressed.
Create a friend class bestfriend to the class frac : Create a friend class BestFriend to the class frac. Inside the class BestFriend, and implement a function outputfrac() to print the content of the frac instance
Determine the constant-growth rate : Robert Gillman, an equity research analyst at Gillman Advisors, believes in efficient markets. He has been following the mining industry for the past 10 years and needs to determine the constant-growth rate that he should use while valuing Pan Asia M..
Senior management role in preparing organization : Explain senior management's role in preparing the organization to shift from a catalog-based retailer to an Internet retailer. Provide evidence of whether the transition was seamless or problematic from a management perspective. Provide support fo..

Reviews

Write a Review

 

Financial Management Questions & Answers

  Directions in the case study to make a three year forecast

How did you derive your forecast? Why did you choose the base case assumptions that you did? Based on your pro forma projections, how much additional financing will The Body Shop need during this period? What are the three or four most important assu..

  What is the available net working capital

On March 31, Adolpha, Inc. reported the following information on its financial statements. What is the available net working capital for Adolpha, Inc.?

  Determine the constant-growth rate

Robert gillman, an equity research analyst at Gillman Advisors, believes in efficient markets, He has been following the mining industry for the past 10 years and needs to determine the constant-growth rate that he should use while valuing Pan Asis M..

  What is the amount of the cash flow to creditors for year

During the past year, the Rawlins Co. paid $234,800 in interest along with $75,000 in dividends. The company issued $50,000 of stock and $200,000 of new debt. The company reduced the balance due on the old debt by $325,000. What is the amount of the ..

  What monetary and fiscal policies

What monetary and fiscal policies might be prescribed for an economy in a deep recession and choose an industry and identify the factors that will determine its performance in the next 3 years. What is your forecast for performance in that time per..

  Expected return and standard deviation of market portfolio

Imagine an economy that is only made of two stocks and a risk-free security, with the following data. Number of Shares Share Price Expected Return Standard Deviation. What are the expected return and standard deviation of the market portfolio?

  What is the projects payback period

A project has an initial cost of 49,000 expected net cash inflow of 13,000 per year for eight years and a cost of capital of 12%. What is the projects payback period?

  Fund manager has a well-diversified portfolio

A fund manager has a well-diversified portfolio that mirrors the performance of the S&P 500 and is worth $510 million. The value of the S&P 500 is 1,700, and the portfolio manager would like to buy insurance against a reduction of more than 5% in the..

  Statements regarding bond trading is incorrect

Which of the following statements regarding bond trading is INCORRECT? The long-term bonds issued by the U.S. government are called Treasury Bills.

  Estimate of the stocks current price

A company currently pays a dividend of $3.75 per share (D0 = $3.75). It is estimated that the company's dividend will grow at a rate of 21% per year for the next 2 years, then at a constant rate of 7% thereafter. The company's stock has a beta of 1.0..

  Reinforce argument that the financial markets are efficient

Which of the following tend to reinforce the argument that the financial markets are efficient?

  Increasing steadily due to increasing demand

Due to increasing value of the Yuan the Chinese electronics manufacturers have been suffering losses. At the same time the cost of a rare-earth mineral used in production of their goods has been increasing steadily due to increasing demand. You have ..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd