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
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MTN is trying to decide whether to lease or buy some new equipment for its tool and die operations. The equipment costs ¢1.5 million has a 8-year life, and will be worthless after the 8 years. The pre-tax cost of borrowed funds is 8 percent and the tax rate is 32 percent. The equipment can be leased for ¢240,000 a year. What is the net advantage to leasing (NAL)?
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Veer
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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.
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2. A firm is considering purchasing equipment that will reduce costs by P40,000. The equipment costs P300,000 and has a salvage value of P50,000 and a life of 7 years. The annual maintenance cost is P6, 000. While not in use by the firm, the equipment can be rented to others to generate an income of P10, 000 per year. If money can be invested for an 8 per cent return, is the firm justified in buying the equipment? a. Rate of Return Method Annual Worth Method b. c. Present Worth Method d. Future Worth Method
2

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