The management team at Piper Ltd is evaluating a proposal to overhaul its production methods company wide. Important details concerning this proposal is provided below:
- The initial cost of the equipment will be $25 million. This cost will be depreciated using the straight-line method over the 10-year life of the upgrade.
- Staff will need to be retrained to use the new equipment. This is expected to cost $500,000.
- Existing equipment will need to be removed and disposed of at a cost of $750,000.
- The new equipment will also enable the firm to offer the leading eye test accuracy and detail on the market. Collectively, this is expected to increase the firm’s revenues by $3 million in year 1. This will increase by 2% p.a.
- The new equipment is expected to save the firm $500,000 in operating costs p.a.
- At the end of years 3, 6 and 9, the new equipment will require a service. Each of these services will cost $50,000.
The firm’s tax rate is 30%. The firm requires a 12% required rate of return on all potential investments.
In relation to the above proposal:
- Calculate the annual after-tax cash flows and annual after-tax profit.
- Calculate the payback period.
- Calculate the net present value.
- Calculate the internal rate of return.
- Calculate the accounting rate of return.
Click on Buy Solution and make payment. All prices shown above are in USD. Payment supported in all currencies. Price shown above includes the solution of all questions mentioned on this page. Please note that our prices are fixed (do not bargain).
After making payment, solution is available instantly.Solution is available either in Word or Excel format unless otherwise specified.
If your question is slightly different from the above question, please contact us at firstname.lastname@example.org with your version of question.