Subject | Mathematics |

Due By (Pacific Time) | 12/14/2016 12:00 am |

9)Copacabana, Inc. is considering purchasing a new facility. This would allow Copacabana to increase its monthly income by $55,000 after depreciation. Other information is as follows:

Initial Investment |
$600,000 |

Useful Life |
9 years |

Salvage Value |
25,000 |

a. Calculate the net cash flow per year .(Note: the company will use straight line depreciation)

b. Calculate the payback period. (round to the nearest tenth)

c. Explain what your answer to “b” means.

10)York Inc. is trying to decide whether to lease or purchase a piece of equipment needed for the next ten years. The equipment would cost $90,000 to purchase, and maintenance costs would be $10,000 per year. After ten years, York estimates it could sell the equipment for $40,000. If York leases the equipment, it would pay $24,000 each year, which would include all maintenance costs. The discount rate for York is 10%.

a. What is the net present value of the cost of purchasing the equipment?

b. What is the net present value of the cost of leasing the equipment?

c. Based on financial factors, should York purchase or lease the equipment? Why?

11)Metro Corp. has the following information about a potential capital investment:

Initial Investment |
$400,000 |

Annual Cash Flow |
$70,000 |

Expected Life |
8 years |

Cost of Capital |
10% |

a. Calculate the net present value of the project

b. Is the project’s IRR more or less than 10% ?

c. Explain your answer to letter “b”.

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