A machine costs £60,000 and requires £5,000 maintenance for each year of its three-year life. The maintenance costs are paid at the end of each year. After three years, the machine will be replaced. Assume a tax rate of 34 percent and a discount rate of 14 percent. If the machine is depreciated over three years using the straight-line method, with no salvage value, What is the equivalent annual cost method of capital budgeting?

A machine costs £60,000 and requires £5,000 maintenance for each year of its three-year life. The maintenance costs are paid at the end of each year. After three years, the machine will be replaced. Assume a tax rate of 34 percent and a discount rate of 14 percent. If the machine is depreciated over three years using the straight-line method, with no salvage value, What is the equivalent annual cost method of capital budgeting?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 5P

See similar textbooks

Similar questions

The DDB Corporation wants to purchase a new machine for its factory operations at a cost of P 800,000. The investment is expected to generate P 400,000 in annual cash flows for a period of five years. The required rate of return is 10%. The old machine can be sold for P 75,000. The machine is expected to have zero value at the end of the five-year period. Disregard income taxes and depreciation. Compute for net present value of the investment.
a manufacturing company bought a new machine for $150,000. the machine will last ten years and will be depreciated using the straight-line method. the estimate salvage value of the machineis zero and should generate a yearly cash inflow of $39,000 Requirement: what is the accounting rate of return? (ignoring taxes)
Master Machine Berhad is considering a four-year project to improve its production efficiency. Buying a new machine press for RM385,000 is estimated to result in RM145,000 in annual pre-tax cost savings. The press is depreciated using straight-line method of 5 years, and it will have a salvage value at the end of the project of RM45,000. The press also requires an initial investment in spare parts inventory of RM20,000, along with an additional RM3,100 in inventory for each succeeding year of the project. If the company’s tax rate is 22 percent and its discount rate is 9 percent, should the company buy and install the machine press?
Beam Company, which is planning to spend P135,000 for a new machine, to be depreciated on a straight line basis over 6 years with no salvage value. The related cash flow from operations, net of income taxes, is expected to be P25,000 a year for each of the first 3 years and P20,000 for the next 4 years. The payback period is years
APJ, Inc. is planning to purchase a new machine that will take six years to recover the cost. The new machine is expected to produce cash flow from operations, net of income taxes, of P4,500 a year for the first three years of the payback period and P3,500 a year of the last three years of the payback period. Depreciation of P3,000 a year shall be charged to income of the six years of the payback period. How much shall the machine cost? * A. P12,000 B. P18,000 C. P24,000 D. P36,000
A 3-year project requires the purchase of a machine (fixed asset) for $6,000 in Year 0. In Year 2, the project is expected to have net income of $2,000 and the depreciation rate is 45%. The tax rate is 35%. There is no interest expense. What is the Operating Cash Flow in Year 2? Enter your answer without the dollar sign and round your final answer to the nearest whole number (nearest dollar).
An existing machine in a factory has an annual maintenance cost of P40,000. A new and more efficient machine will require an investment of P90,000 and is estimated to have salvage value of P30,000 at the end of 8 years. Its annual expenses for maintenance and upkeep etc. is total of P 22,000. if the company expects to earn 12% on its investment, will it be worthwhile to purchase the new machine using the present worth. Use PW Method
Your company wants to bid on the sale of 10 customized machines per year for five years. The initial costs for the project are €1.6 million with a salvage value of €800,000 after five years. The machine will be depreciated straight- line to zero over the five years. Annual fixed costs are estimated at €700,000. Variable cost per machine is €81,500. The project requires net working capital of €120,000. The company has a 34% tax rate and desires a 15% return on the project. What is the minimum price that the company should bid per single machine? €198,196 €212,028 €219,887 €221,009 None of the above.
A machine has a first cost of $10,000 and an expected salvage value of $900 when it is sold. Annually, the operating cost is $500, and the revenue generated from sales is $2,500. What is the payback period assuming a MARR of 20% per year, an effective tax rate of 15%, and straight line depreciation over 5 years taking into account the salvage value (note, even though the machine might be fully depreciated down to its salvage value for tax purposes, assume the machine can continue to operate forever and that it will never be sold).
A computer system can be purchased for $18,000. The operating costs will be $10,000 per year, and the useful life is expected to be 5 years with a $5,000 salvage value at that time. The present annual sales volume should increase by $16,000 as a result of acquiring the system. Assume the company's tax rate is 50%. Using a straight-line deprecation method, compute annual taxes and IRR for the investment. Rework the previous problem assuming (i) the system's taxable life is 8 years with a salvage value of $2,000, but that (ii) the company still salvages the system after 5 years for $5,000. Describe how this may affect cash flow in the forthcoming years.
The Janna Company is planning to purchase a new machine. The payback period will be six years. The cash flow from operation , net of income taxes, will be P20,000 a year for each of the first three years of the payback period and P30,000 a year for each of the last three years of the payback period. Depreciation of P15,000 a year will be charged to income for each of the six years of the payback period. How much will the machine cost?
A project requires purchase of machinery for $150,000. The project generates an annual after-tax operating income of $10,000. The machine's expected useful life is 8 years with no salvage value at the end of its useful life. The required return for the project is 10%. The CCA rate for the machines is 20%. The company's marginal income tax rate is 40%. What is the PV of after-tax cash flows?