A company just purchased a new vehicle for $25,000. The vehicle's salvage value at EOY1 is 80% ofthe initial cost and decreases by 20% every year afterwards. The O&M cost in Year 1 is zero, but is$950 in Year 2 and increases by $950 annually. The company's MARR is 10%. The economic life ofthe vehicle isyears.O A.6OB.5OC.7OD.85O E. 3OF. 4

Economic Life: It is the timeframe a resource is supposed to be valuable to the owner.

Answered: A company just purchased a new vehicle…

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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Ultra-clean special handling devices used in the filling process for the manufacture of baby food are placed into use at a cost of $850,000. These devices are expected to be useful for 4 years with a negligible salvage value at that time. Compare MACRS to traditional depreciation methods by calculating yearly depreciation allowances, present worth of the depreciation allowances, and book value for each year using each of the following. MARR is 11%. a. MACRS-GDS as is proper over its property class depreciation life. b. DDB taking a full deduction in the first year, with the last deduction in year 3. c. DDB switching to straight-line, taking a full deduction in the 1st year, with the last deduction in year 3. d. SLN taking a full deduction in the 1st year, with the last deduction in year 3.
4. The Scampini Supplies Company recently purchased a new delivery truck. The new truck has an after-tax cost of $22,500, and it is expected to generate after-tax cash flows, of $6,250 per year. The truck has a 5- year expected life. The expected year-end abandonment values (after-tax salvage values) for the truck are given here. The company's WACC is 10%. Year Annual After-Tax Cash Flow ($22,500) 6,250 6,250 6,250 6,250 6,250 0 1 2 3 5 After-Tax Abandonment Value $17,500 14,000 11,000 5,000 0 a. .Should the firm operate the truck until the end of its 5-year physical life; if not, what is the truck's optimal economic life? b. Would the introduction of abandonment values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project? Explain.
2 Break-even. Value-Chains makes keychains out of gold. Each keychain can be sold for $100. The materials cost is $40. The Öxed costs incurred each year for factory and administrative expenses are $200,000. The machinery costs $1 million and is depreciated straight-line over 10 years to a salvage value of zero. 1. What is the accounting break-even level of annual sales in terms of number of keychains sold? 2. What is the NPV break-even level of sales assuming a tax rate of 35%, a 10-year project life, and a discount rate of 12%? 3. Elaborate on your observations and decisions. (Variable cost per unit remains unchanged)
A Company has just invested in a new Machining Center that cost $150,000. The company believes that it will be able to use this new piece of equipment for the next 10 years. At the end of this 10 year period, the company thinks that they can sell this equipment for $20,000. The company's MARR value is 10% ycy. (P/F %.n) (A/F %,n) (F/A %,n) (A/P %,n) (P/A %, 10 0.3855 0.06275 15.9374 0.16275 6.1446 Question: Calculate the Annual Capital Recovery & Return Value (CR) for this new equipment. Please Fill the dollar amount in the answer window. (For example if your answer was $30,000; enter 30,000. If your answer was $-15,000; then enter -15,000) -23,157.5
A truck was purchased for $58,000 and depreciates $6560 per year. Suppose that the vehicle is depreciated so that it holds 60% of its value from the previous year. Write an exponential function of the form =yV0bt , where V0 is the initial value and t is the number of years after purchase.
Q4. Al Dhahabi Mills Ltd. purchases a machinery which costs RO 20,000. The useful life of the machine is 10 years and the annual rate of depreciation is 8% per annum, depreciation being calculated on WDV method. After 10 years, the existing machine has to be replaced by a new one which will cost 250% more than the book value of the existing machine at that time. a) If company sells existing machine at scrap value, What is the extra amount the company will require at the end of 10th year to replace the existing machine by a new one? b) Do you agree with company's decision to sell the existing machine after 10 years and buy new one. Give reasons to your answer
Equipment purchased 2 years ago by Newport Corporation to make pneumatic vibration isolators cost $110,500. It has a market value that can be described by the relation $110,500 – $8,600k, where k is the years from time of purchase. The operating cost for the first 5 years is $63,000 per year, after which it increases by $6,800 per year. The asset's salvage value was originally estimated to be $7000 after a predicted 10-year useful life. Determine the values of P, S, and AOC if (a) a replacement study is done now and it is assumed that the equipment will be kept a maximum of one more year, and (b) a replacement study is done 5 years from now and it is assumed that the equipment will be kept a maximum of only one more year after that. a) The value of Pis $ The value of S is $ The value of AOC is $ b) The value of Pis $ The value of S is $ The value of AOC is $
15. A company purchases a piece of equipment for $15,000. After nine years, the salvage value is $900. The annual insurance cost is 5% of the purchase price, the electricity cost is $600/yr, and the maintenance and replacement parts cost is $120/yr. The effective annual interest rate is 10%. Neglecting taxes, what is most nearly the present worth of the equipment if it is expected to save the company $4500 per year? (A) $2300 (B) $2800 (C) $3200 (D) $3500
Your company has purchased a new piece of equipment for $1,000,000 and the equipment has a useful life of 5 years and uses the straight-line method of depreciation. It is estimated that labor costs and maintenance costs will be reduced by $500,000 per year for the next 5 years. Your company has a hurdle rate of 10%. Calculate the Net Present Value (NPV) for the equipment purchase. a) $895,000 b) $735,000 c) $525,000 d) $1,000,000 I got option a, I also think this is correct.
29. X Corporation is considering buying a $25,000 machine. Its estimated useful life is 5 years, with no salvage value. X anticipates annual net income after taxes of $1,500 from the new machine. What is the rate of return on average investment, assuming that X uses straight-line depreciation and that the net income is earned uniformly throughout each year? A. 6.0% B. 8.0% C. 12.0% D. 26.0% E. 52.0%
A company with $500,000 in operating assets is considering the purchase of a machine that costs $60,000 and which is expected to reduce operating costs by $15,000 each year. These reductions in cost occur evenly throughout the year. The payback period for this machine in years is closest to (Ignore income taxes - O 0.25 years 8.3 years 04 years 33.3 years

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