91) Maremount Tyre Company needs to overhaul its auto lift system or buy a new one. The

facts have been gathered, and they are as follows:

Current Machine New Machine

Purchase Price, New $112 500 $148 000

Current book value 33 500

Overhaul needed now 27 500

Annual cash operating costs 63 000 48 000

Current salvage value 40 000

Salvage value in five years 8000 35 000

Required:

Which alternative is the most desirable with a current required rate of return of 15%? Show

computations, and assume no taxes.

91)

92) Match each one of the examples below with one of the stages of the capital budgeting

decision model.

Stages:

1. Identify Projects

2. Obtain Information

3. Make Predictions

4. Make Decisions by Choosing Among Alternatives

5. Implement the Decision, Evaluate Performance, and Learn

________ a. Issuing shares for the funds to purchase new equipment

________ b. Learning that to effectively operate Machine #8 only takes 15 minutes

________ c. The need to reduce the costs to process the vegetables used in producing

goulash

________ d. Monitoring the costs to operate a new machine

________ e. Percentage of defective merchandise is considered too high

________ f. Will introducing the new product substantially upgrade our image as a

producer of quality products?

________ g. Research indicates there are five machines on the market capable of

producing our product at a competitive cost

________ h. Use of the internal rate of return for each alternative

92)

 

 

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