4. ABC Company is interested in replacing a machine with a new one. The old machine has a salvage value of $20,000 now and no salvage value 3 years later, if rebuilt. If the old machine is kept, it must be rebuilt one year after at a predicted cost of $30,000.

The new machine costs $120,000 and had a predicted salvage value of $25,000 at the end of three years. If purchased, the new machine will allow cash savings of $40,000 for the first year and $20,000 for each year of its remaining life. The cash savings all occur at the end of the respective year.

Required:

What is the net present value of purchasing the new machine if ABC Company has a required rate of return of 14%? (15%)

5. XYZ Company makes a special kind of television called HD. To produce HD, XYZ used $10,000,000 of assets at the beginning of 2018 and $14,000,000 of assets at the end of 2018. Other costs to produce HD are as follows:

Direct materials

$6,000 per unit

Direct labor

$100 per direct labor hour

Indirect manufacturing cost

$200 per machine hour

The marketing costs for HD are $800,000 in 2018. During 2018, XYZ produced and sold 1,000 units of HD using 8,000 direct labor hours and 6,000 machine hours. HD is sold for $10,000 each.

Required:

(1). Assuming XYZ defines investment as average assets during the period, calculate the return on investment for HD. (10%)