Hello Transtutors can you please help me with these practice problems? 🙂
(Ignore income taxes in this problem.) Kumanu, Inc. is considering investing in new FMS equipment for its factory. This equipment will cost $80,000, is expected to last 6 years, and is expected to have a $10,000 salvage value at the end of 6 years. The new equipment is expected to generate cost savings of $20,000 per year in each of the 6 years. Kumanu’s discount rate is 16%. What is the net present value of this equipment?
a. $(2,200)
b. $3,700
c. $20,500
d. $(34,950)
(Ignore income taxes in this problem) The management of Nagata Corporation is investigating buying a small used aircraft to use in making airborne inspections of its above ground pipelines. The aircraft would have a useful life of 6 years. The company uses a discount rate of 13% in its capital budgeting. The net present value of the investment, excluding the intangible benefits, is $326,237. To the nearest whole dollar how large would the annual intangible benefit have to be to make the investment in the aircraft financially attractive?
a. $326,237
b. $54,373
c. $81,600
d. $42,411
(Ignore income taxes in this problem.) Tighe Corporation is contemplating purchasing equipment that would increase sales revenues by $420,000 per year and cash operating expenses by $231,000 per year. The equipment would cost $747,000 and have a 9 year life with no salvage value. The annual depreciation would be $83,000. The simple rate of return on the investment is closest to:
a. 25.3%
b. 14.2%
c. 11.1%
d. 25.2%