Finance- Builtrite has estimated their cost of capital is 14% and they are considering the purchase

| January 31, 2017

Question
QUESTION 1

1. QUESTIONS 1 – 3 GO WITH THE FOLLOWING PROBLEM:

Builtrite has estimated their cost of capital is 14% and they are considering the purchase of a machine with the following capital budget:

Initial Investment

$62,000

RATFCF Year 1

$22,000

RATFCF Year 2

$30,000

RATFCF Year 3

$38,000

2.
What is the machine’s NPV?

$5,783

$6,014

$4,824

$5,442

1 points

QUESTION 2

1. What is the Profitability Index (PI) of this machine?

1.06

1.19

1.28

1.10

1 points

QUESTION 3

1. What is the Internal Rate of Return of this machine?

20.81%

19.19%

20.19%

19.81%

1 points

QUESTION 4

1. QUESTIONS 4 – 5 GO WITH THE FOLLOWING INFORMATION:

Builtrite is considering purchasing a new machine that would cost $60,000 and the machine would be depreciated (straight line) down to $0 over its five year life. At the end of five years it is believed that the machine could be sold for $15,000. The machine would increase EBDT by $42,000 annually.
Builtrite’s marginal tax rate is 34%.

What the RATFCF’s associated with the purchase of this machine?

$27,840

$33,520

$30,780

$31,800

1 points

QUESTION 5

1. What is the TCF associated with the purchase of this machine?

$5,100

$7,500

$9,900

$0

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