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)

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)

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 new machine can be purchased for $1,500,000. It will cost $45,000 to ship and $55,000 to install the machine. The new machine will replace an older machine that is fully depreciated and will be sold for $125,000. The firm’s income tax rate is 40%. What is the initial outlay (IO) for the new machine? $1,525,000 $1,600,000 $1,675,000 $1,725,000
Suppose you inherit $100,000 at age 25 and immediately invested in a growth fund who’s annual rate of return average is 13%. Five years later, you transfer all proceeds from the scrubs fun into a long-term IRA that pays an average annual rate of 8%. Immediately you start making additional contributions of $7000 per year to the same IRA. Assuming continuous interest, steady interest rates, and a perfect record of making annualcontributions, how much is this IRA worth when you reach the age of 65? The formula that will need to be used is A = P e^r*t + D/r (e^r*t - 1). Hint: use the continuous interest formula to find the accumulated amount for the first five years, which is then the annual investment, P, into the IRA.
Veer
FULL QUESTION: Kinky Copies may buy a high-volume copier. The machine costs $100,000 and this cost can be fully depreciated immediately. Kinky anticipates that the machine actually can be sold in 5 years for $30,000. The machine will save $20,000 a year in labor costs but will require an increase in working capital, mainly paper supplies, of $10,000. The firm’s marginal tax rate is 21%, and the discount rate is 8%. (Assume the net working capital will be recovered at the end of Year 5.) What is the NPV of this project? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)
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A corporation is considering purchasing a machine that will save $150,000 per year before taxes. The cost of operating the machine (including maintenance) is $30,000 per year. The machine will be needed for five years, after which it will have a zero salvage value. MACRS depreciation will be used, assuming a three-year class life. The marginal income tax rate is 25%. If the firm wants 15% return on investment after taxes, how much can it afford to pay for this machine? Click the icon to view the MACRS depreciation schedules Click the icon to view the interest factors for discrete compounding when /- 15% per year. If the firm wants 15% return on investment after taxes, it can afford to pay thousand for this machine. (Round to one decimal place.)
Scription Inc. has additional cash available for investment and considers replacing the old factory equipment with a new one. There are two options for Scription. One option is to purchase a new equipment from Supplier A for $100,000. Supplier A equipment has a useful life of 10 years with after-tax residual value, $5,000 and can save $60,000 annually. The other option is with Supplier B. Supplier B would charge $120,000 for a new equipment. Supplier B equipment would generate $50,000 annual cost saving. Its useful life is 12 years and the after-tax residual value of $6,000. Assume the required rate of return for both options is 8%. Using NPV method, determine which option is the more attractive. Must show your computation steps. Use the appropriate tables in Appendix A to obtain the relevant present value factor and round up your final answer to the nearest dollar.
A firm is considering purchasing a machine that costs $56000. It will be used for six years, and the salvage value at that time is expected to be zero. The machine will save $45000 per year in labor, but it will incur $9000 in operating and maintenance costs each year. The machine will be depreciated according to five-year MACRS. The firm's tax rate is 40%, and its after-tax MARR is 14%. Should the machine be purchased?
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Which one should you choose?
Raghubhai
A company is planning to buy a new truck that will cost P700,000 and will be depreciated on a straight-line basis over 5-year period. The new truck will replace another that has a book value of P450,000 and five years useful life remaining. The old truck can be sold for P400,000. The current tax rate is 35%. How much is the net initial investment for the new truck?

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