coperatae finance exam
1 )Refer to the homework --choice between Current rent a machine/Purchase a machine/Purchase a new machine
Tea company rent a bottling machine for 50,000 per year, including all the maintaining cost. It is considering to purchase a machine instead.
A. Purchase the machine it is currently costing for 150,000. The machine will require 21,000 per year for maintain.
B. Purchase a new more advanced machine for 260,000. The machine will require 15,000 per year for ongoing maintain. And will save the bottling cost of 11000 per year. Also 40,000 will be spend upfront training the new operator of the new machine.
Suppose the appropriate discount rate is 9% per year and the machine is purchase today. Maintince and bottling cost will be paid on end of the year. The machine will depreciation via the straight line depreciation over seven years and they have 10 year machine life with
The NPV of rent the machine is ?
The NPV of option a is ?
The NPV of option b is ?
Which is the best choice?
2) GM product 500,000 electronic moto a year and expect output level remain stable in the future. The company buy it with a cost of 2.5 each.
The plant mgr believes it is cheaper to make it instead of buy it. Production will cost 1.8
The necessary machine will cost 700,000 and will be obsolete in 10 years. The investment would be depreciation to tax of 10 year straight line depreciation.
The plant manager estimates that the operation would require additional capital expenditure of 40,000 in year.
The expected proceeds from scrapping the machine after 10 years are estimated to be 10,000.
The IRR for GM of manufactory the part in house is close to
Tax 35%/ 10%.
Choice: 48%/49%/50%/53%
Correct answer 50%
3). RBC is considering acquiring POP Inc a smaller unsuccessful Internet firm
POP has outstanding tax loss carry forward of 120 million loss over the past six years.
RBC has pre-tax income of 100 million per year, a cost of capital of 10% and pay 35% in taxes.
Tea company rent a bottling machine for 50,000 per year, including all the maintaining cost. It is considering to purchase a machine instead.
A. Purchase the machine it is currently costing for 150,000. The machine will require 21,000 per year for maintain.
B. Purchase a new more advanced machine for 260,000. The machine will require 15,000 per year for ongoing maintain. And will save the bottling cost of 11000 per year. Also 40,000 will be spend upfront training the new operator of the new machine.
Suppose the appropriate discount rate is 9% per year and the machine is purchase today. Maintince and bottling cost will be paid on end of the year. The machine will depreciation via the straight line depreciation over seven years and they have 10 year machine life with
The NPV of rent the machine is ?
The NPV of option a is ?
The NPV of option b is ?
Which is the best choice?
2) GM product 500,000 electronic moto a year and expect output level remain stable in the future. The company buy it with a cost of 2.5 each.
The plant mgr believes it is cheaper to make it instead of buy it. Production will cost 1.8
The necessary machine will cost 700,000 and will be obsolete in 10 years. The investment would be depreciation to tax of 10 year straight line depreciation.
The plant manager estimates that the operation would require additional capital expenditure of 40,000 in year.
The expected proceeds from scrapping the machine after 10 years are estimated to be 10,000.
The IRR for GM of manufactory the part in house is close to
Tax 35%/ 10%.
Choice: 48%/49%/50%/53%
Correct answer 50%
3). RBC is considering acquiring POP Inc a smaller unsuccessful Internet firm
POP has outstanding tax loss carry forward of 120 million loss over the past six years.
RBC has pre-tax income of 100 million per year, a cost of capital of 10% and pay 35% in taxes.