# Acc 560 week 8 homework chapter 12 (e12-3, e12-5, e12-8, p12-4a)

`Chapter 12: Planning for Capital Investments`

E12-3

Hillsong Inc. manufactures snowsuits. Hillsong is considering purchasing a new sewing machine at a cost of \$2.45 million. Its existing machine was purchased five years ago at a price of \$1.8 million; six months ago, Hillsong spent \$55,000 to keep it operational. The existing sewing machine can be sold today for \$250,000. The new sewing machine would require a one-time, \$85,000 training cost. Operating costs would decrease by the following amounts for years 1 to 7:

Year 1             \$390,000

2          400,000

3          411,000

4          426,000

5          434,000

6          435,000

7          436,000

The new sewing machine would be depreciated according to the declining-balance method at a rate of 20%. The salvage value is expected to be \$400,000. This new equipment would require maintenance costs of \$100,000 at the end of the fifth year. The cost of capital is 9%.

Instructions

Use the net present value method to determine whether Hillsong should purchase the new machine to replace the existing machine, and state the reason for your conclusion.

E12-5

Bruno Corporation is involved in the business of injection molding of plastics. It is considering the purchase of a new computer-aided design and manufacturing machine for \$430,000. The company believes that with this new machine it will improve productivity and increase quality, resulting in an increase in net annual cash flows of \$101,000 for the next 6 years. Management requires a 10% rate of return on all new investments.

Instructions

Calculate the internal rate of return on this new machine. Should the investment be accepted?

E12-8

Pierre’s Hair Salon is considering opening a new location in French Lick, California. The cost of building a new salon is \$300,000. A new salon will normally generate annual revenues of \$70,000, with annual expenses (including depreciation) of \$41,500. At the end of 15 years the salon will have a salvage value of \$80,000.

Instructions

Calculate the annual rate of return on the project.

Jane’s Auto Care is considering the purchase of a new tow truck. The garage doesn’t currently have a tow truck, and the \$60,000 price tag for a new truck would represent a major expenditure. Jane Austen, owner of the garage, has compiled the estimates shown on the next page in trying to determine whether the tow truck should be purchased.

Initial cost ……………………………..\$60,000

Estimated useful life ……………………8 years

Net annual cash flows from towing …….\$8,000

Overhaul costs (end of year 4) …………\$6,000

Salvage value …………………………\$12,000

Jane’s good friend, Rick Ryan, stopped by. He is trying to convince Jane that the tow truck will have other benefits that Jane hasn’t even considered. First, he says, cars that need towing need to be fixed. Thus, when Jane tows them to her facility, her repair revenues will increase. Second, he notes that the tow truck could have a plow mounted on it, thus saving Jane the cost of plowing her parking lot. (Rick will give her a used plow blade for free if Jane will plow Rick’s driveway.) Third, he notes that the truck will generate goodwill; people who are rescued by Jane’s tow truck will feel grateful and might be more inclined to use her service station in the future or buy gas there. Fourth, the tow truck will have “Jane’s Auto Care” on its doors, hood, and back tailgate—a form of free advertising wherever the tow truck goes. Rick estimates that, at a minimum, these benefits would be worth the following.

Additional annual net cash flows from repair work ………………..\$3,000

Annual savings from plowing …………………………………………750

Additional annual net cash flows from customer “goodwill” ……….1,000

The company’s cost of capital is 9%.

Instructions

(a) Calculate the net present value, ignoring the additional benefits described by Rick.

Should the tow truck be purchased?

(b) Calculate the net present value, incorporating the additional benefits suggested by

Rick. Should the tow truck be purchased?

(c) Suppose Rick has been overly optimistic in his assessment of the value of the additional benefits. At a minimum, how much would the additional benefits have to be worth in order for the project to be accepted?

Calculate the price
Pages (550 words)
\$0.00
*Price with a welcome 15% discount applied.
Pro tip: If you want to save more money and pay the lowest price, you need to set a more extended deadline.
We know how difficult it is to be a student these days. That's why our prices are one of the most affordable on the market, and there are no hidden fees.

Instead, we offer bonuses, discounts, and free services to make your experience outstanding.
How it works
Receive a 100% original paper that will pass Turnitin from a top essay writing service
step 1
Fill out the order form and provide paper details. You can even attach screenshots or add additional instructions later. If something is not clear or missing, the writer will contact you for clarification.
Pro service tips
How to get the most out of your experience with Australia Assessments
One writer throughout the entire course
If you like the writer, you can hire them again. Just copy & paste their ID on the order form ("Preferred Writer's ID" field). This way, your vocabulary will be uniform, and the writer will be aware of your needs.
The same paper from different writers
You can order essay or any other work from two different writers to choose the best one or give another version to a friend. This can be done through the add-on "Same paper from another writer."
Copy of sources used by the writer
Our college essay writers work with ScienceDirect and other databases. They can send you articles or materials used in PDF or through screenshots. Just tick the "Copy of sources" field on the order form.
Testimonials
See why 20k+ students have chosen us as their sole writing assistance provider
Check out the latest reviews and opinions submitted by real customers worldwide and make an informed decision.
Education
Good work. Thank you for following the instructions and the corrections, and making the necessary changes.
Customer 463679, March 3rd, 2023
Psychology
Excellent.
Customer 463097, June 23rd, 2022
Other
great job, thanks
Customer 462485, March 18th, 2022
SEO
Great job
Customer 463961, May 13th, 2023
excellent job
Customer 456821, July 30th, 2022
Education
Loved the fact that the writer took note of the corrections given and did a superb job. Good work
Customer 463679, March 3rd, 2023
Good content. Journals do not require citations/references.
Customer 459947, May 29th, 2022
Excellent work!
Customer 463337, March 7th, 2023
English 101
Always use Grammarly before submitting your papers.
Customer 462495, April 6th, 2022
Education
Great job
Customer 463647, January 10th, 2023
History
The work is really good and even better than I could have imagined.
Customer 454439, June 12th, 2020
Social Work and Human Services
Great writer! Thanks for the revision, the paper is so much better than ones previous.
Customer 463301, November 8th, 2022
11,595
Customer reviews in total
96%
Current satisfaction rate
3 pages
Average paper length
37%
Customers referred by a friend