Ignore income taxes. Instructions: By using the net-present-value method, determine whether SST Entertainment should acquire the boat. Assume a 14% desired return on all investments- round calculations to the nearest dollar. Using the net-present-value method: (14%, -$55, 736 In my personal opinion, by looking at the above calculations SST Entertainment should not acquire the boat. [pick Chapter 8 Problem 4: 4. Equipment replacement decision Columbia Enterprises is studying the replacement of some equipment that originally cost $74,000.

The equipment is expected to provide six more years of service if $8,700 of major repairs are performed in two years. Annual cash operating costs total $27,200. Columbia can sell the equipment now for $36,000; the estimated residual value in six years is $5,000. New equipment is available that will reduce annual cash operating costs to $21 ,OHO. The equipment costs $103,000, has a service life of six years, and has an estimated residual value of $13,000. Company sales will total $430,000 per year with either the existing or the ewe equipment.

Columbia has a minimum desired return of 12% and depreciates all equipment by the straight-line method. By using the net-present-value method, determine whether Columbia should keep its present equipment or acquire the new equipment. Round all calculations to the nearest dollar, and ignore income taxes. The present value of the equipment is: 6-8, 700= $27,200 The present value of new equipment is: $21 In my opinion it would be more cost efficient for Columbia Enterprises to acquire the new equipment than it would be for them to keep their present equipment. So yes they should acquire the new equipment.

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Columbians management feels that the time value of money should be considered in all long-term decisions. Briefly discuss the rationale that underlies management’s belief. For a company when they are considering the time value of money they are trying to get a look at the big picture and see if the investment that they are making is going to produce a profit to the company or if they are considering buying equipment then they want to see if the equipment is something that is going to help them to earn money and not something that they will constantly have to be sinking more and more money into.

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