A construction company is considering acquiring a new earthmover. The purchase price is $110,000, and an additional $25,000 is required to modify the equipment f special use by the company. The equipment falls into the MACRS seven-year classification (the tax life), and it will be sold after five years (the project life) for $50,000 The purchase of the earthmover will have no effect on revenues, but the machine is expected to save the firm $68,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 25%. Assume that the initial investment is to be financed by a bank loan at an interest rate of 10% payable annually. Determine the after-tax cash flows by using the generalized cash flow approach and the worth of the investment for this project if the firm's MARR is known to be 12%. Click the icon to view the MACRS depreciation schedules. Click the icon to view the interest factors for discrete compounding when /= 10% per year. Click the icon to view the interest factors for discrete compounding when i = 12% per year. Fill in the table below. (Round to the nearest dollar.) Period Net After-Tax Cash Flow 0 2

A construction company is considering acquiring a new earthmover. The purchase price is $110,000, and an additional $25,000 is required to modify the equipment f special use by the company. The equipment falls into the MACRS seven-year classification (the tax life), and it will be sold after five years (the project life) for $50,000 The purchase of the earthmover will have no effect on revenues, but the machine is expected to save the firm $68,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 25%. Assume that the initial investment is to be financed by a bank loan at an interest rate of 10% payable annually. Determine the after-tax cash flows by using the generalized cash flow approach and the worth of the investment for this project if the firm's MARR is known to be 12%. Click the icon to view the MACRS depreciation schedules. Click the icon to view the interest factors for discrete compounding when /= 10% per year. Click the icon to view the interest factors for discrete compounding when i = 12% per year. Fill in the table below. (Round to the nearest dollar.) Period Net After-Tax Cash Flow 0 2

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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ou must evaluate a proposal to buy a new milling machine. The purchase price of the milling machine, including shipping and installation costs, is $157,000, and the equipment will be fully depreciated at the time of purchase. The machine would be sold after 3 years for $86,000. The machine would require an $8,000 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $47,000 per year. The marginal tax rate is 25%, and the WACC is 9%. Also, the firm spent $4,500 last year investigating the feasibility of using the machine. What is the initial investment outlay for the machine for capital budgeting purposes after the 100% bonus depreciation is considered, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar.
with calculations and reason
Moore & Moore (MM) is considering the purchase of a new machine for $50,000, installed. MM will use the MACRS accelerated method to depreciate the machine, which is classified as 5-year property (see the following MACRS table for depreciation rates). MM expects to sell the machine at the end of its 4-year operating life for $10,000. If MM's marginal tax rate is 40%, what will the after-tax cash flow be when it disposes of the machine at the end of Year 4? Annual depreciation rates for years 1 through 6 are respectively as follows: 20%, 32%, 19%, 12%, 11%, 6%. A. $7,656 B. $8,059 C. $8,484 D. $8,930 E. $9,400
A proposed cost-saving device has an installed cost of $765,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes (MACRS schedule). The required initial net working capital investment is $67,000, the tax rate is 21 percent, and the project discount rate is 9 percent. The device has an estimated Year 5 salvage value of $103,000. What level of pretax cost savings do we require for this project to be profitable? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Pretax cost savings
A proposed cost-saving device has an installed cost of $825,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes (MACRS schedule). The required initial net working capital investment is $91,000, the tax rate is 23 percent, and the project discount rate is 9 percent. The device has an estimated Year 5 salvage value of $139,000. What level of pretax cost savings do we require for this project to be profitable? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Pretax cost savings
Nguyen Inc. is considering the purchase of a new computer system (ICX) for $140,000. The system will require an additional $20,000 for installation. If the new computer is purchased it will replace an old system that has been fully depreciated. The new system will be depreciated over a period of 8 years using straight-line depreciation. If the ICX is purchased, the old system will be sold for $20,000. The ICX system, which has a useful life of 8 years, is expected to increase revenues by $31,000 per year over its useful life. Operating costs are expected to decrease by $3,000 per year over the life of the system. The firm is taxed at a 40 percent marginal rate. Round your answers to the nearest dollar. A. what investment is required to acquire the ICX system and replace the old system? B. compute the annual net cash flows associated with the purchase of the ICX system.
A construction company is considering the proposed acquisition of a newearthmover. The purchase price is $100,000, and an additional $25,000 is required to modify the equipment for special use by the company. The equipment falls into the MACRS five-year classification (tax life). and it will be sold after five year. (project life) for $50,000. Purchase of the earthmover will have no effect on revenues. but it is expected 10 save the firm $60,000 per year in before-tax operating costs-mainly labor.The firm's marginal tax rate is 40%. Assume that the initial investment is to be financed. by a bank loan at an intrest rate of 10% payable annually. Determine that after-tax cash flow and the worth of investment for this project if the firm's MARR is known to be 12°o.
Your firm needs a computerized machine tool lathe which costs $50,000 and requires $12,000 in maintenance for each year of its 3-year life. After three years, this machine will be replaced. The machine falls into the MACRS 3-year class life category, and neither bonus depreciation nor Section 179 expensing can be used. Assume a tax rate of 21 percent and a discount rate of 12 percent. nts Calculate the depreciation tax shield for this project in year 3. (Round your answer to 2 decimal places.) Print Depreciation tax shield eferences 00
Guelph Inc. would like you to assess the after-tax viability of a new machine using annual worth analysis. The machine costs $1,000,000 and are expected to save the company $175,000/y for the next 15 years. Guelph Inc. plans to sell the machine at the end of 15 years. The estimated salvage value of the machine at the end of its life is unknown, but Guelph Inc. suspects its depreciation will be similar to the CCA rate for the machine: 20%. Should Guelph Inc. invest in the machine, assuming they use an annual MARR of 10% and their corporate tax rate is 30%?
Although the company does not have an option to delay construction, it does have the option to abandon the project 1 year from now if the tax is imposed. If it abandons the project, it will sell the complete property 1 year from now at an expected price of $7 million after taxes. Once the project is abandoned, the company will no longer receive any cash flows. Assuming that all cash flows are discounted at 12%, will the existence of this abandonment option affect the company’s decision to proceed with the project today? Explain.
Arnold Inc. is considering a new project that requires use of an existing warehouse, which the firm acquired three years ago for $1 million and which it currently rents out for $121,000. Rental rates are not expected to change going forward. In addition to using the warehouse, the project requires an upfront investment into machines and other equipment of $1.6 million. This investment can be fully depreciated straight-line over the next 10 years for tax purposes. However, Arnold Inc. expects to terminate the project at the end of eight years and to sell the machines and equipment for $471,000. Finally, the project requires an initial investment into net working capital equal to 10% of predicted first-year sales. Subsequently, net working capital is 10% of the predicted sales over the following year. Sales of protein bars are expected to be $4.6 million in the first year and to stay constant for eight years. Total manufacturing costs and operating expenses (excluding depreciation) are…
Louie's Leisure Products is considering a 4-year project which will require the purchase of $1.2 million in new equipment. The project will use existing land for a warehouse. The market value of the land is $1 million and is expected to remain unchanged in the future. The equipment will be depreciated straight-line to a book value of $0.2 million over the 4-year life of the project. Louie's expects to sell the equipment at the end of the project for 25% of its original cost. Annual sales from this project are estimated at $1.2 million. The operating cost is 25% of the sales revenue. Net working capital equal to 20% of sales will be required to support the project. The firm desires a 10% rate of return on this project. The tax rate is 40%. Should Louie's Leisure Products accept the project?

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