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(10-9) Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory.
(10-9) Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Since both forklifts perform the same function, the firm will choose only one. They are mutually exclusive investments.) The electric-powered truck will cost more but it will be less expensive to operate; it will cost $22,000, whereas the gas-powered truck will cost $17,500. The cost of capital that applies to both investments is 12%. The life for both types of truck is estimated to be 6 years, during which time the net cash flows for the electric-powered truck will be $6,290 per year. Annual net cash flows include depreciation expenses. Calculate the NPV and IRR for each type of truck, and decide which to recommend.(11-9) The Taylor Toy Corporation currently uses an injection-molding machine that was purchased 2 years ago. This machine is being depreciated on a straight-line basis, and it has 6 years of remaining life. Its current book value is $2,100, and it can be sold for $2,500 at this time. Thus, the annual depreciation expense is $$2,100/6 = $350 per year. If the old machine is not replaced, it can be sold for $500 at the end of its useful life.Taylor is offered a replacement machine that has a cost of $8,000, an estimated useful life of 6 years, and an estimated salvage value of $800. This machine falls into the MACRS 5 year class, so the applicable depreciation rates are 20%, 32%, 19%, 11%, and 6%. The replacement machine would permit an output expansion, so sales would rise by $1,000 per year; even so, the new machine’s much greater efficiency would reduce operating expenses by $1,500 per year. The new machine would require that inventories be increased by $2,000, but accounts payable would simultaneously increase by $500. Taylor’s marginal federal-plus-state tax rate is 40%, and its WACC is 15%. Should it replace the old machine?(11-10) St. John River Shipyards is considering the replacement of an 8 year-old riveting machine with a new one that will increase earnings before depreciation from $27,000 to $54,000 per year. The new machine will cost $82,500, and it will have an estimated life of 8 years and no salvage value. The new machine will be depreciated over its 5 year MACRS recovery period, so the applicable depreciation rates are 20%, 32%, 19%, 12%, and 6%. The applicable corporate tax rate is 40%, and the firm’s WACC is 12%. Yje old machine has been fully depreciated and has no salvage value. Should the old riveting machine be replaced by the new one?(11-11) Shao Industries is considering a proposed project for its capital budget. The company estimates the project’s NPV is $12 million. This estimate assumes that the economy and market conditions will be average over the next few years. This company’s CFO, however, forecasts there is only a 50% chance that the economy will be average. Recognizing this uncertainty, she has also performed the following scenario analysis.NPV-$70 million- 25 million12 million20 million30 millionWhat is the projects expected NPV, in standard deviation, and coefficient of variations?
