A large company is planning to purchase equipment costing $250,000 and will depreciate it fully using straight-line depreciation over 5 years. The company expects that the investmentwill have an annual benefit of $64,000. Each use of the equipment will also provide a benefit of $30. In 5 years, there will be no salvage value for the equipment. The company's combinedmarginal tax rate is 30%. Based on 18% after-tax MARR, how many uses of the equipment must the company have each year in order to justify its investment?Question 5 Part A: Choose the correct Before Tax Cash Flow Diagram for this scenario from the following choices.Option A01250,000Option C0250,0001G=30640005i=18%64000 +30X5i = 18%Option BG=30X64000015i = 18%250,000Option D0250,0005i=18%64000 +30X

In this scenario, the company is planning to purchase equipment costing $250,000 and will depreciate…

Answered: A large company is planning to purchase…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Lombard Company is contemplating the purchase of a new high-speed widget grinder to replace the existing grinder. The existing grinder was purchased 2 years ago at an installed cost of $57,400; it was being depreciated under MACRS using a 5-year recovery period. The existing grinder is expected to have a usable life of 5 more years. The new grinder costs $103,300 and requires $5,200 in installation costs; it has a 5-year usable life and would be depreciated under MACRS using a 5-year recovery period. Lombard can currently sell the existing grinder for $69,900 without incurring any removal or cleanup costs. To support the increased business resulting from purchase of the new grinder, accounts receivable would increase by $40,800, inventories by $29,900, and accounts payable by $57,900. At the end of 5 years, the existing grinder would have a market value of zero; the new grinder would be sold to net $28,600after removal and cleanup costs and before taxes. The firm is subject…
Updated class practice problem to include state tax and proper consideration of asset disposal (1/2 depreciation and need BV to determine recapture or loss) GIVENS: Initial Cost $150,000 Annual net saving $50,000 state Useful life 6 years federal 6.50% 21.0% Salvage value $30,000 tax rate BTCF-D TI tax rate BTCF-Income Tax Year Taxable BTCF MACRS Depreciation Income Income Tax ATCF 0 ($150,000) ($150,000) 1 50,000 20% ($30,000) $20,000 $4,618 45,382 2 50,000 32% ($48,000) $2,000 $462 49,538 3 50,000 19.20% ($28,800) $21,200 $4,895 45,105 4 50,000 11.52% ($17,280) $32,720 $7,555 42,445 5 50,000 11.52% ($17,280) $32,720 $7,555 42,445 6 50,000 2.88% ($4,320) $45,680 $10,548 63,523 indudes 6 and disposal disposal 30,000 BV= $4,320 $25,680 $5,930 recapture ROR Question 1 What is the ATCF ROR when state taxes and asset disposal are properly considered?
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A relatively small privately owned coal-mining company has the sales results summarized below. Determine the annual percentage depletion for the coal mine. Assume the company’s taxable income is $150,000 each year. Year Sales, Tons Spot Sales Price, $/Ton 1 34,300 9.82 2 50,100 10 3 71,900 11.23 Year Gross Income, $ Depletion amount 50% of the taxable amount Allowed Depletion 1 2 3
A large company is planning to purchase equipment costing $220,000 and will depreciate it fully using straight-line depreciation over 8 years. The company expects that the investment will have an annual benefit of $54,000. Each use of the equipment will also provide a benefit of $25. In 5 years, there will be no salvage value for the equipment. The company's combined marginal tax rate is 24%. Based on 12% after-tax MARR, how many uses of the equipment must the company have each year in order to justify its investment? Question 8 Part A: Choose the correct Before Tax Cash Flow Diagram for this scenario from the following choices. Option A 0 1 220,000 Option C 0 1 G=25 54000 i = 12% 8 i = 12% 54000 +25X Option B G=25X 54000 0 1 220,000 Option D 0 1 8 i = 12% 54000+25X i = 12%
A new machine costs $899,090 and falls in a 29.50% CCA class. The machine will have zero value after 5 years of use but will save $417,680 annually in operating costs before taxes in those five years. Assume a tax rate of 34.17%. Using a required return of 15.11%, what is the equivalent annual cost (EAC) of the machine purchase, considering the annual cash flow, initial purchase, and CCA tax shield? Options $59,682 $61,252 $62,823 $64,393 $65,964
None

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