need answers and steps to answers.
1) A new furnace for your small factory will cost $37,000 and a year to install, will require ongoing maintenance expenditures of $2,500 a year. But it is far more fuel-efficient than your old furnace and will reduce your consumption of heating oil by 3,400 gallons per year. Heating oil this year will cost $3 a gallon; the price per gallon is expected to increase by $0.50 a year for the next 3 years and then to stabilize for the foreseeable future. The furnace will last for 20 years, at which point it will need to be replaced and will have no salvage value. The discount rate is 8%.
a. What is the net present value of the investment in the furnace? (Do not round intermediate calculations. Round your answer to the nearest whole dollar.)
b. What is the IRR? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
c. What is the payback period? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
d. What is the equivalent annual cost of the furnace? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
e. What is the equivalent annual savings derived from the furnace? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
f. Compare the PV of the difference between the equivalent annual cost and savings to your answer to part (a). Are the two measures the same or is one larger?
2) The owner of a bicycle repair shop forecasts revenues of $212,000 a year. Variable costs will be $63,000, and rental costs for the shop are $43,000 a year. Depreciation on the repair tools will be $23,000.
a. Prepare an income statement for the shop based on these estimates. The tax rate is 20%.
b. Calculate the operating cash flow for the repair shop using the three methods given below:
Now calculate the operating cash flow.
Dollars in minus dollars out.
Adjusted accounting profits.
Add back depreciation tax shield.
3)If you insulate your office for $25,000, you will save $2,500 a year in heating expenses. These savings will last forever.
a. What is the NPV of the investment when the cost of capital is 4%? 10%?
b. What is the IRR of the investment? (Enter your answer as a whole percent.)
c. What is the payback period on this investment?
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