A corporation is considering purchasing a new plant asset. The asset will cost $30,000. The corporation requires a 10% return on similar investments. The corporation plans to use the ass for 4 years and then sell it for the salvage value. The estimated salvage value of the asset in 4 years is $5,000. The corporation estimates that if purchased the new asset will provide additi net cash flows of $9,000 each year for 4 years (assume the cash flows occur at the end of the year): Calculate the net present value (you must include the calculation in order to receive credit) Should the business purchase the asset?

A corporation is considering purchasing a new plant asset. The asset will cost $30,000. The corporation requires a 10% return on similar investments. The corporation plans to use the ass for 4 years and then sell it for the salvage value. The estimated salvage value of the asset in 4 years is $5,000. The corporation estimates that if purchased the new asset will provide additi net cash flows of $9,000 each year for 4 years (assume the cash flows occur at the end of the year): Calculate the net present value (you must include the calculation in order to receive credit) Should the business purchase the asset?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Homer Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $143,000. The equipment will have an initial cost of $550,000 and have a 5-year life. If the salvage value of the equipment is estimated to be $18,000, what is the annual net cash flow? Multiple Choice 3 $125,000 $36,600 $249,400 $161,000
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A small print shop is investing in new printing equipment that will cost $33,000. They estimate that they will gain of $11,000 per year in additional revenues for each of the next 6 years. At the end of 6 years, the equipment will have a salvage value of $3.,500. Assuming a tax rate of 22%, a MACRS 5-year property class, 50% bonus depreciation, and an after-tax MARR of 8%, compute the present worth of the printing equipment and determine whether or not the print shop should invest in it. Click here to access the TVM Factor Table calculator. Click here to access the MACRS-GDS Property Classes. Click here to access the MACRS-GDS percentages page. Click here to access the MACRS-GDS percentages for 27.5-year residential rental property. Carry all interim calculations to 5 decimal places and then round your final answer to a whole number. The tolerance is +10. Should the print shop invest in the printing equipment?