Kimmel Company Account Assingment Help With Solution

Posted on April 13, 2017

Kimmel Company Account Assingment Help With Solution

 
PROBLEM 1

1) Kimmel Company. has provided the following data concerning a proposed investment project:

Initial investment $250,000
Life of the project 10 years
Annual net cash inflows $32,000
Salvage value $5,000

The company uses a discount rate of 15%.

Required:

Compute the net present value of the project.

PROBLEM 2
The management of Erion Corporation is considering the purchase of an automated molding machine that would cost $280,534, would have a useful life of 5 years, and would have no salvage value. The automated molding machine would result in cash savings of $74,000 per year due to lower labor and other costs.

Required:

Determine the internal rate of return on the investment in the new automated molding machine. Show your work!

 

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PROBLEM 3
 
The Ace Manufacturing Company is trying to decide if it should invest in a new machine or refurbish the
current machine already in use in its manufacturing facility.
 
Investment Decision Alternative 1 – Refurbish the Current Machine
The Current Machine in use can be refurbished at an immediate cost of $180,000. Further repairs and
an overhaul will be needed in 5 years at a cost of $50,000. The current machine after refurbishing will
have a useful life of 10 years. At the end of the 10 years, the scrap (salvage) value of the machine will
be $20,000.The Net Annual cash flows as a result of the refurbishing will yield $40,000 for the ten year period.
 
Investment Decision Alternative 2 – Purchase a New Machine
As an alternative choice, the company can invest in a New Machine at a cost of $300,000. The New
Machine will have a useful life of 10 years, but it will require some repairs at the end of 5 years of
$5,000. At the end of ten years the New Machine will have a scrap (salvage) value of $40,000. The Net
Annual cash flows as a result of buying the New Machine will be $50,000 for the ten year period. If the
Company decides to buy the New Machine, the Old Machine has a salvage value and can be sold for
$10,000.
Ace Manufacturing Company requires a return of 12% on
all Investment projects (before taxes).
Required:
1) Compare the two Investment Alternatives using a Net Present Value Approach.
2) Which Investment Alternative should the Company choose?
– PLEASE EXPLAIN THE REASON FOR CHOOSING THE INVESTMENT –
 

 

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