6Because it fumes at room temperatures, hydrochloric acid creates a very corrosive work environment. A machine working in thatenvironment is deteriorating quickly and can be used for only one more year, at which time it will be scrapped with no salvage value. Itwas purchased 3 years ago for $88,000, and its operating cost for the next year is expected to be $49,000. A more corrosion-resistantchallenger will cost $206,000 with an operating cost of $46,000 per year. It is expected to have a $50,000 salvage value after its 10-year ESL. At an interest rate of 8% per year, what minimum replacement value would render the challenger attractive?The minimum replacement value that would render the challenger attractive is $ 5To understand the advantage of debt capital from a tax perspective in the United States, determine the before-tax and approximatedafter-tax weighted average costs of capital if a project is funded 60% -40% (D-E mix) with debt capital borrowed at 9% per year. Arecent study indicates that corporate equity funds earn 18% per year and that the effective tax rate is 37% for the year.The tax advantage reduces the WACC from% per year.Skipped% to

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Answered: 6 Because it fumes at room…

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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A remotely located air sampling station can be powered by solar cells or by running an above ground electric line to the site and using conventional power. Solar cells will cost $17,200 to install and will have a useful life of 5 years with no salvage value. Annual costs for inspection, cleaning, and other maintenance issues are expected to be $2,000. A new power line will cost $25,500 to install, with power costs expected to be $1,000 per year. Since the air sampling project will end in 5 years, the salvage value of the line is considered to be zero. At an interest rate of 10% per year and using an AW analysis, what must be the first cost of the above ground line to make the two alternatives equally attractive economically? The first cost of the above ground line to make the two alternatives equally attractive economically is $-1
The production manager on the Ofon Phase 2 offshore platform operated by Total S.A. must purchase specialized environmental equipment or an equivalent service. The first cost is $250,000 with an AOC of $66,000. The manager has let it be known that he does not care about the salvage value because he thinks it will make no difference in the decision-making process. His supervisor estimates the salvage might be as high as $100,000 or as low as $10,000 in 3 years, at which time the equipment will be unnecessary. Alternatively, a subcontractor can provide the service for $165,000 per year. The total offshore project MARR is 13% per year. Determine if the decision to buy the equipment is sensitive to the salvage value. The annual worth of high salvage value is $______________ 142,525 incorrect.. The annual worth of low salvage value is $_______________ 168,940 incorrect.. Decision is sensitive…
The manager of a plant that manufactures stepper drives knows that MACRS and DDB are both accelerated depreciation methods, but out of curiosity, he wants to determine which one offers faster write-off in the first three years for equipment that has a first cost of $400,000, a 5-year life, and a $50,000 salvage value. Determine which method yields the lower book value and by how much. DDB provides faster write-off for 3 years and difference is $28,800 DDB provides faster write-off for 3 years and difference is $12,600 MACRS provides faster write-off for 3 years and difference is $28,800 MACRS provides faster write-off for 3 years and difference is $12,600
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Because it fumes at room temperatures, hydrochloric acid creates a very corrosive work environment. A machine working in that environment is deteriorating quickly and can be used for only one more year, at which time it will be scrapped with no salvage value. It was purchased 3 years ago for $88,000, and its operating cost for the next year is expected to be $47,000. A more corrosion-resistant challenger will cost $236,000 with an operating cost of $48,000 per year. It is expected to have a $50,000 salvage value after its 10- year ESL. At an interest rate of 8% per year, what minimum replacement value would render the challenger attractive? The minimum replacement value that would render the challenger attractive is $ |
International Soup Company is considering replacing a canning machine. The old machine is being depreciated by the straight-line method over a 10-year recovery period from a depreciable cost basis of $120,000. The old machine has 5 years of remaining usable life, at which time its salvage value is expected to be zero, and it can be sold now for $40,000. This machine has a current book value of $60,000. The purchase price of the new machine is $250,000. Employees were sent to a training course last year on how to use the new machine; this training cost $5,000. The new machine has a 5-year life and an expected salvage value of $25,000. Annual savings of electricity, labor, and materials from use of the new machine are estimated at $40,000. The company is in a 40 percent tax bracket and its cost of capital is 16 percent. The MACRS depreciation method will be used and the recovery percentages for assets with a 5-year class life are given below: What is the initial cash outlay for the…
Georgia Energy is contemplating replacing an oil-powered generator with a solar powered generator. The old generator was purchased twenty-two years ago and is being depreciated over its 25-year life to a zero salvage value using straight-line depreciation. The old generator has a book value of $4.5 million but could be sold today for $3.0 million. The solar powered generator would cost $10 million and be depreciated over a 4-year life using MACRS (.3333,.4445,.1481,.0741). Due to the rapidly changing technology, it is anticipated that the new generator will be sold after three years for $1.0 million. The new generator is expected to save Georgia Energy $10 million a year during its 3-year life. Georgia Energy will need to increase working capital by $1.5 million. The company’s WACC is 10% and the tax rate is 35%. What is the project’s net present value (NPV)? Should the oil-powered generator be replaced? View keyboard shortcuts
6. The Imperial Chemical Company is considering purchasing a chemical analysis machine worth $13,000. Although the purchase of this machine will not produce any increase in sales revenues, it will result in a reduction of labour costs. In order to operate the machine properly, it must be calibrated each year. The machine has an expected life of 6 years, after which it will have no salvage value. The following table summarizes the annual savings in labour cost and the annual maintenance costs in calibration over 6 years: Net Cash Flow ($) Costs ($) Year (n) 0 Savings ($) 13,000 -13,000 1 2,300 6,000 3,700 2 2,300 7,000 4,700 3 2,300 9,000 6,700 4 2,300 9,000 6,700 5 2,300 9,000 6,700 6 2,300 9,000 6,700 Find the internal rate of return for this project. [6]
14. Vernon-Nelson Chemicals is planning to release a new brand of insecticide, Bee-Safe, that will kill many insect pests but not harm useful pollinators. Buying new equipment to manufacture the product will cost $20 million, and there will be an additional $2 million cost to reconfigure existing plant. The equipment is expected to have a lifetime of eight years and will be depreciated by the straight-line method over its lifetime. The firm expects that they should be able to sell 1,500,000 gallons per year at a price of $51 per gallon. It will take $40 per gallon to manufacture and support the product. If Vernon-Nelson's marginal tax rate is 20%, what are the incremental earnings in year 3 of this project? *multiple choice*
Because it fumes at room temperatures, hydrochloric acid creates a very corrosive work environment. A machine working in that environment is deteriorating quickly and can be used for only one more year, at which time it will be scrapped with no salvage value. It was purchased 3 years ago for $88.000, and its operating cost for the next year is expected to be $56,000. A more corrosion-resistant challenger will cost $238,000 with an operating cost of $46,000 per year. It is expected to have a $50,000 salvage value after its 10-year ESL. At an interest rate of 14% per year, what minimum replacement value would render the challenger attractive? The minimum replacement value that would render the challenger attractive is $128498.7
Rust Industrial Systems Company is trying to decide between two different conveyor belt systems. System A costs $295,000, has a four-year life, and requires $77,000 in pretax annual operating costs. System B costs $355,000, has a six-year life, and requires $83,000 in pretax annual operating costs. Both systems are to be depreciated straight- line to zero over their lives and will have zero salvage value. Whichever project is chosen, it will not be replaced when it wears out. The tax rate is 21 percent and the discount rate is 8 percent. Calculate the NPV for both conveyor belt systems. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) System A System B Which conveyor belt system should the firm choose? System A ○ System B
Tanaka Industrial Systems Company is trying to decide between two different conveyor belt systems. System A costs $360,000, has a 4-year life, and requires $149,000 in pretax annual operating costs. System B costs $440,000, has a 6-year life, and requires $143,000 in pretax annual operating costs. Both systems are to be depreciated straight- line to zero over their lives and will have zero salvage value. Suppose the company always needs a conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is 24 percent and the discount rate is 10 percent. Calculate the EAC for both conveyor belt systems. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. System A -650,486.43 X System B -836,677.14 X $ $

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