Custom Cycles is looking at purchasing a new piece of equipment that would allow them...
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Custom Cycles is looking at purchasing a new piece of equipment that would allow them to automate part of their production process now done manually. The equipment will cost $ and would have a useful life of years. At the end of year five, the equipment would require a $ upgrade to replace major components. The equipment is expected to have a salvage value of $ at the end of year ten. Excluding depreciation, the new machine will have operating costs of $ per year. The company uses straightline depreciation for all production equipment. The cost of doing the work manually that the new machine will be able to do completely is $ per year. Custom Cycles requires a return on all investments in equipment. Required: What net annual cash inflows will be provided by the new equipment? Compute the new equipments net present value. Use the incremental cost approach. Hint: Use Microsoft Excel to calculate the discount factorsDo not round intermediate calculations and PV factor. Round the final answers to the nearest whole dollar. What is the internal rate of return on the new equipment? Hint: Use Microsoft Excel to calculate the discount factors
Custom Cycles is looking at purchasing a new piece of equipment that would allow them to automate part of their production process now done manually. The equipment will cost $ and would have a useful life of years. At the end of year five, the equipment would require a $ upgrade to replace major components. The equipment is expected to have a salvage value of $ at the end of year ten.
Excluding depreciation, the new machine will have operating costs of $ per year. The company uses straightline depreciation for all production equipment. The cost of doing the work manually that the new machine will be able to do completely is $ per year. Custom Cycles requires a return on all investments in equipment.
Required:
What net annual cash inflows will be provided by the new equipment?
Compute the new equipments net present value. Use the incremental cost approach. Hint: Use Microsoft Excel to calculate the discount factorsDo not round intermediate calculations and PV factor. Round the final answers to the nearest whole dollar.
What is the internal rate of return on the new equipment? Hint: Use Microsoft Excel to calculate the discount factors
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