Sign In
Not register? Register Now!
Essay Available:
Pages:
3 pages/β‰ˆ825 words
Sources:
Check Instructions
Style:
APA
Subject:
Mathematics & Economics
Type:
Math Problem
Language:
English (U.S.)
Document:
MS Word
Date:
Total cost:
$ 12.96
Topic:

Evaluating the Capital Investment Mathematics & Economics Math Problem

Math Problem Instructions:

Please Use Microsoft Word to do this Assignment. Thanks. Directions Are Below.
Project: Evaluate the Capital Investment
Scenario
Shoals Corporation puts significant emphasis on cash flow when planning capital investments. The company chose its discount rate of 8 percent based on the rate of return it must pay its owners and creditors. Using that rate, Shoals Corporation then uses different methods to determine the most appropriate capital outlays.
This year, Shoals Corporation is considering buying five new backhoes to replace the backhoes it now owns. The new backhoes are faster, cost less to run, provide for more accurate trench digging, have comfort features for the operators, and have 1-year maintenance agreements to go with them. The old backhoes are working just fine, but they do require considerable maintenance. The backhoe operators are very familiar with the old backhoes and would need to learn some new skills to use the new backhoes.
The following information is available to use in deciding whether to purchase the new backhoes:

Old Backhoes

New Backhoes
Purchase cost when new
$90,000

$200,000
Salvage value now

Math Problem Sample Content Preview:

Evaluating the Capital Investment
Name Course Instructor Date
(a) Evaluate, discuss, and compare whether to purchase the new equipment or overhaul the old equipment. (Hint: For the old machine, the initial investment is the cost of the overhaul.)For the new machine, subtract the salvage value of the old machine to determine the initial cost of the investment.)
[1] Calculate the net present value of the old backhoes and the new backhoes. Discuss the net present value of each, including what the calculations reveal about whether the company should purchase the new backhoes or continue using the old backhoes.
 

 

Old Backhoes

 

 

Year

Investment

Old Salvage Value

Net Cash Flow

Discount rate 8%

Present Value

0

($90,000)

 

($90,000)

1

 

1

 

 

$30,425

0.9259

$28,171.30

2

 

 

$30,425

0.8573

$26,084.53

3

 

 

$30,425

0.7938

$24,152.35

4

 

 

$30,425

0.7350

$22,363.28

5

 

 

$30,425

0.6806

$20,706.74

6

 

 

$30,425

0.6302

$19,172.91

7

 

 

$30,425

0.5835

$17,752.70

8

 

 

$30,425

0.5403

$16,437.68

 

 

 

$15,000

0.5403

$8,104.03

 

$55,000

 

 

 

($55,000)

 

 

 

 

 

 

NPV

 

 

 

 

$127,945.52

The NPV for the new backhoes is higher at $177,610.78 compared to $127,945.52 for the old backhoes and the company should buy new backhoes. The decision criterion in the NPV approach is to accept the investment with positive returns and the highest returns. The Net Present Value (NPV) is determined as the defined as the sum of discounted cash flow less the investment costs including the initial investment (Martinez & Collado, 2019). When the NPV is positive the investment is profitable, if it is zero then it breaks even, and when the NPV is negative the investment is not profitable (Martinez & Collado, 2019).
 

 

New Balances

 

 

Year

Investment

Old Salvage Value

Net Cash Flow

Discount rate 8%

Present Value

0

($200,000)

 

($200,000)

1

($200,000)

1

 

$42,000

$42,000

1

$42,000

1

 

 

$43,900

0.9259

$40,648.15

2

 
<...
Updated on
Get the Whole Paper!
Not exactly what you need?
Do you need a custom essay? Order right now:
Order

πŸ‘€ Other Visitors are Viewing These APA Math Problem Samples:

HIRE A WRITER FROM $11.95 / PAGE
ORDER WITH 15% DISCOUNT!
Order Now