Riverbed's Accounting Museum is exploring the purchase of a new building with a useful life of 15 years to use as its main galleryspace. The building will cost $1,098,000. Once it has been purchased, the museum will terminate its current lease, which costs$65,700 per year. The new gallery will allow the museum to display more of its permanent collection, as well as to showcase travelingexhibits. The increased exhibit space, along with the new building's location, is expected to increase admissions revenue by $25,800per year.Calculate the payback period for the proposed investment in the building. Assume that all cash flows occur evenly throughout the year.Payback periodyears

Payback period (PBP) refers to the period or duration within which the company is able to recover…

Answered: Riverbed's Accounting Museum is…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Swifty’s Accounting Museum is exploring the purchase of a new building with a useful life of 20 years to use as its main gallery space. The building will cost $1,369,200. Once it has been purchased, the museum will terminate its current lease, which costs $69,000 per year. The new gallery will allow the museum to display more of its permanent collection, as well as to showcase traveling exhibits. The increased exhibit space, along with the new building’s location, is expected to increase admissions revenue by $28,800 per year.Calculate the payback period for the proposed investment in the building. Assume that all cash flows occur evenly throughout the year. (Round answer to 0 decimal places, e.g. 5,275.) Payback period years Click if you would like to Show Work for this question:
Blossom, Inc. is considering the purchase of a warehouse directly across the street from its manufacturing plant. Blossom currently warehouses its inventory in a public warehouse across town. Rent on the warehouse and delivering and picking up inventory cost Blossom $48960 per year. The building will cost Blossom $459000. Blossom will depreciate the building for 20 years. At the end of 20 years, the building will have a $127500 salvage value. Blossom’s required rate of return is 11%. suggest whether he should buy warehouse
Green County is planning to construct a bridge across the south branch of Carey Creek to facilitate traffic flow though Clouser Canyon. The first cost for the bridge will be $9,500,000. Annual maintenance and repairs the first year of operation, estimated to be $10,000, are expected to increase by $1000 each year thereafter. In addition to regular maintenance, every 5 years the roadway will be resurfaced at a cost of $750,000, and the structure must be painted every 3 years at a cost of $100,000. If Green County uses 5% as its cost of money and the bridge is expected to last for 20 years, what is the EUAC?
Cullumber, Inc. is considering the purchase of a warehouse directly across the street from its manufacturing plant. Cullumber currently warehouses its inventory in a public warehouse across town. Rent on the warehouse and delivering and picking up inventory cost Cullumber $50880 per year. The building will cost Cullumber $477000. Cullumber will depreciate the building for 20 years. At the end of 20 years, the building will have a $132500 salvage value. Cullumber's required rate of return is 12%. Click here to view the factor table. Using the present value tables, the building's net present value is (round to the nearest dollar) O $1017600. O $46077. O $393783. O $-83217.
The Department of Engineering is contemplating the purchase of a top-of-the- line PCB drilling machine to be used in its laboratories. The price of the machine is $5,000. The depreciation rate of the machine follows the SL method over its 10 years life. The market value of the machine at the end of its life is estimated to be $1,000. Annual fees paid by students to use the machine are estimated to be $500. What is the interest rate that would make this purchase break even if the Department would sell the machine at EOY 8? (Hint: the market value at EOY 8 is the book value of the machine at the time).
Robertson Construction Company is considering two projects upon which to bid. The first is for 5-year renovation of an aging government building. For Robertson to do this job they will need to invest $1.2 million into various equipment (with the total salvage value being approximately $50,000, with yearly operations cost beginning at $5,000 in year 1, and increasing by $500 each year of the project). The second is the building of a library which is expected to take 7 years and will require a $1.6 million dollar investment (salvage being $80,000 at the end of 7 years with yearly operations cost at $4,000). Assume that almost identical renovation projects come up every 5 and 7 years respectively. Robertson has a MARR of 10% a) Robertson has been asked to quote an annual price that each project will cost. What is the minimum annual price Robertson should ask for if each project will be worth their while? Include all your calculations for this.b) If these projects were mutually exclusive…
The Parkview Hospital is considering the purchase of a new autoclave. This equipment will cost $150,000. This asset will be depreciated using an MACRS (GDS) recovery period of three years. Use this information to solve, The BV at the end of the second year is (a) $27,771 (b) $41,667 (c) $116,675 (d) $33,325
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City of Oliver is considering automating a process in its accounting department that has been labor-intensive. The equipment currently used in the department can be sold. The new equipment will have a projected useful life of 10 years. The old equipment has a remaining useful life of 10 years. The following data are available to be used in making the decision. Should the city invest in the new equipment? Support your answer with appropriate calculations. Current equipment Current equipment book value $ 30,000 Annual depreciation charges 3,000 Current estimated disposal value 5,000 New equipment Cost $150,000 Annual depreciation charge 12,500 Expected disposal value 25,000 Labor savings each year $ 50,000 Present value factors @ 6% $1…
The city of Columbia is considering extending the runways of its municipal airport so that commercial jets can use the facility. The land necessary for the runway extension is currently a farmland that can be purchased for $350,000. Construction costs for the runway extension are projected to be $600,000, and the additional annual maintenance costs for the extension are estimated to be $22,500. If the runways are extended, a small terminal will be constructed at a cost of $250,000. The annual operating and maintenance costs for the terminal are estimated at $75,000. Finally, the projected increase in flights will require the addition of two air traffic controllers at an annual cost of $100,000. Annual benefits of the runway extension have been estimated as follows (shown): Apply the B–C ratio method with a study period of 20 years and a MARR of 10% per year to determine whether the runways at Columbia Municipal Airport should be extended.
Sheldon Coopers Lab Services (SCLS) is bidding upon a service contract to maintain and upgrade 5 of the University's science labs per year for the next six years. The contract will require purchasing $972,000 in equipment that will be depreciated using straight-line depreciation to a zero book value over the project's life. The equipment can be sold for $325,000 at the end of the service contract. They will also need $140,000 in net working capital over the life of the contract. While performing the contract work, they expect to incur fixed costs of $500,000 per year and a variable cost of $226,000 per lab. They will also face a corporate tax rate of 21%. If the required rate of return is 15%, what is the minimum offer they can make per lab and still turn an economic profit?
The Ocean City water park is considering the purchase of a new log flume ride. The cost to purchase the equipment is $8,000,000, and it will cost an additional $475,000 to have it installed. The equipment has an expected life of 6 years, and it will be depreciated using a MACRS 7-year class life. Management expects to run about 150 rides per day, with each ride averaging 35 riders. The season will last for 120 days per year. In the first year, the ticket price per rider is expected to be $5.25, and it will be increased by 4% per year. The variable cost per rider will be $1.65, and total fixed costs will be $525,000 per year. After six years, the ride will be dismantled at a cost of $245,000 and the parts will be sold for $600,000. The cost of capital is 8.5%, and its marginal tax rate is 25%. a. Calculate the initial outlay, annual after-tax cash flow for each year, and the terminal cash flow.

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