10-9A (New proiect analysis) The Chung Ch..nical Corporation is considering the purchase ochemical analysis machine. Although the machine being considered will result in an increaseearnings before interest and taxes of S35,000 per year, it has a purchase price of $100,000, and iwould cost an additional $5,000 after tax to properly install this machineln sddiaon, to properoperate this machine, inventory must be increased by S5,000. This machine has an expectedof 10 years, after which it will have no salvage value. Also, assume simplified straight-line depciation and that this machine is being depreciated down to zero, a 34 percent marginal tax rate.and a required rate of return of 15 percent.2. What is the initial outlay associated with this project?b. What are the annual after-tax cash flows associated with this project for years I throughc. What is the terminal cash flow in year 10 (what is the annual after-tar cash flow in10 plus any additional cash flows associated with termination of the project)?d. Should this machine be purchased?

We are given the following details related to a project:We are required to compute the following:a)…

Answered: 10-9A (New proiect analysis) The Chung…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A3
Firm X is considering the replacement of an old machine with one that has a purchase price of $70,000. The current market value of the old machine is $22,000 but the book value is $ 37,000. The firm's combined tax rate is 27%. What is the net cash outflow for the new machine after considering the sale of the old machine? Disregard the effect of depreciation of the new machine if acquired.
Gibson Mfg., Inc. is considering the introduction of a new product. Company management has prepared the following estimates related to the project as well as the related range of values, where applicable. The project under consideration has a five-year life and initial costs of $15,000. Assume the tax rate is 34 percent, there is no salvage value, and the project requires a 12 percent rate of return. sales quantity 2000 +_7percent sales price $14+_10 percent variable cost per unit $10+_2percent fixed costs $8+_1percent depreciation $3000 What is the contribution margin under the pessimistic scenario? a)$2.4 b)$3.8 c)$4.0 d)$5.6
The management of Origami Company, a wholesale distributor of beachwear products, is considering purchasing a $30,000 machine that would reduce operating costs in its warehouse by $5,000 per year. At the end of the machine's eight-year useful life, it will have no scrap value. The company's required rate of return is 11%. (Ignore income taxes.) Required: 1. Determine the net present value of the investment in the machine. (Hint: Use Microsoft Excel to calculate the discount factor(s).) (Do not round intermediate calculations and round your final answer to the nearest dollar amount. Negative amount should be indicated by a minus sign.) Net present value 2. What is the difference between the total undiscounted cash inflows and cash outflows over the entire life of the machine? Net cash flow
ss
3. Solar Solutions has purchased new manufacturing equipment that cost $400,000. Calculate the yearly tax savings from the CCA tax shield for the next three years. Assume that the income tax rate is 30%, the CCA rate is 30%, and the weighted-average cost of capital (WACC) is 12%. Assume that CCA in the first year is subject to the accelerated depreciation method for the year of acquisition. (Hint. Use Microsoft Excel to calculate the discount factor(s).) (Do not round your intermediate calculations. Round your final answers to 2 decimal places.) X Answer is complete but not entirely correct. Year 1 2 3 $ $ $ PV of Tax Savings 91,071.43 x 56,919.64 X 35,574.78 X
am. 120.
The firm purchases a vehicle with equity capital only, no debt. The purpose of the vehicle is to operate a taxi service for one year. This is the problem as we worked in class, but now the life of the vehicle is only one year, after which time the vehicle is worthless. Also some of the other values are different. The firm is contemplating the following: Vehicle acquisition cost $30,000 Years of useful life (economic life) 1 Tax rate0% Required rate of return on equity10% Annual revenues$ 145,000 Operating expenses (excluding depreciation)$ 100,000 Tips: 1.Depreciate straight-line over the year of useful life,down to $0 over one year. 2. The maximum dividend is paid annually. 3. Ignore any working capital effects. 4. Capital charge will be based on the assets at the beginning of each year. Please include in the analysis: P&L - OCF analysis EVA analysis Does this project deserve consideration? How much wealth, if any, will it create?
A Canadian company is considering the purchase of a $7000 machine for their shop. The machine belongs to an asset Class with d = 0.20. The machine is expected to save $2800 per year over its 10-year life, with no scrap value. The company's tax rate is 40% and its after-tax MARR is 15%. What is the after-tax PW of the machine? (Hint: Use CTF to make the problem easier)
The Lesseis Company has an opportunity to invest in one of two mutally exclusive machines that will produce a product the company will need for the next 8 years Machine A has an after-tax cost of $8 million but will provide after-tux inflows of $4.9 million per year for 4 years. If Machine A were replaced, its after-tax cost would be million $8.7 million due to inflation and its after-tax rash inflows would increase to $5,1 million due to production efficiencies. Machine B has an after-tax cost of $13.2 million and will provide after- tax inflows of $4,5 million for 8 years. per year If the WACC is 8%, which machine should be acquired? Enter your answers in millions, For example, on answer of $10, 550, 000 should be entered as 10.55. Do not rand intermediate calculations. Round your answers to two decimal places. millines millians, rather millions created by Machine Machine A is the better project and will increase the company's value by $ then the $ B.
We are considering the purchase of a $760,000 computed based inventory management system. It is in class 10 with a CCA rate of 30 per cent. The computer has a four-year life. It will be worth $30,000 at that time. The system would save us $60,000 pre-tax in inventory-related cost. The relevant tax rate is 28%. Because the new setup is more efficient than our existing one, we would be able to carry less total inventory and thus free $45,000 in net working capital. The required return is 10 percent. Required 1. Calculate the present value of CCA tax shield. 2. Explain why the CCA tax shield is consider a source of cash-inflow.
Required information [The following information applies to the questions displayed below.] Nick's Novelties, Inc., is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $300,000, have a fifteen-year useful life, and have a total salvage value of $30,000. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues $200, 000 Less operating expenses: Commissions to amusement houses $60,000 30,000 18,000 35,000 Insurance Depreciation Maintenance 143, 000 $ 57,000 Net operating income Required: 1a. Compute the payback period associated with the new electronic games. 1b. Assume that Nick's Novelties, Inc., will not purchase new games unless they provide a payback period of five years or less. Would the company purchase the new games?

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