A new machine costs $1,050,110 and falls in a 34.00% CCA class. The machine will have zero value after 5 years of use but will save $487,790 annually in operating costs before taxes in those five years. Assume a tax rate of 36.33%. Using a required return of 17.27%, what is the NPV of the machine purchase?

A new machine costs $1,050,110 and falls in a 34.00% CCA class. The machine will have zero value after 5 years of use but will save $487,790 annually in operating costs before taxes in those five years. Assume a tax rate of 36.33%. Using a required return of 17.27%, what is the NPV of the machine purchase?

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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Account
You want to buy a new plant with a price of Rs. 400,000. The borrowing cost is 10% interest rate to be paid at the end of each year. If it is purchased, the maintenance fee is Rs.10,000 per year paid at the end of each year. The depreciation falls in the MACRS 5-year class, rates are 30%, 20%, 10%, and 09%. The tax is 40%. Alternatively, the plant can be taken on lease for Rs. 85,000 upon delivery with 4 more annual rentals of Rs. 85,000 to be made at the end. This alternative includes maintenance requirement. After 04 years the asset’s salvage value is expected to be Rs. 20, 000. Required: What do you suggest should the plant be leased or purchased? Why?
Genesis Corporation want to purchase a piece of machinery for $150,000 that will cost $20,000 to have it delivered and installed. Based on past information, they believe they can sell the machinery for $25,000 in 5 years. The company’s marginal tax rate is 34%. If the applicable CCA rate is 20% and the required return on this project is 15%, what is the present value of the CCA tax shield?
Sparky Inc. is evaluating a project that costs $150 using the WACC method. Their WACC is 11.5% and the project has EBIT of $75 per year each year for six years. The tax rate is 30%. Calculate the NPV of the project.
You are preparing to produce some goods for sale. You will sell them in one year and you will incur costs of $86,000 immediately. If your cost of capital is 6.6%, what is the minimum dollar amount you need to sell the goods for in order for this to be a non-negative NPV?
The Wildwood Widget Company needs a milling machine for its new assembly line. The machine presently costs $85,000, but has a cost inflation rate of 2%. Widget will not need to purchase the machine for 3 years. If general inflation is expected to be 4% per year during those 3 years, determine the price of the machine. What is the present worth of the machinery if the market rate of interest for Widget is 25%?
Belmont 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 $290,000. The equipment will have an initial cost of $1,000,000 and have an 8 year life. If there is no salvage value of the equipment, what is the accounting rate of return? Multiple Choice 21.5% 29.0% 58.0% 24.0%
What is the NPV of project D? Assume that the firm requires a minimum after-tax return of 8% on investment. Project D costs $5,000 and will generate sales of $4,000 each year for 5 years. The cash expenditures will be $1,500 per year. The firm uses straight-line depreciation with an estimated salvage value of $500 and has a tax rate of 25%. (2) What is the book rate of return based on the average book value? (Round your answer to 2 decimal places.)
Raghubhai
Suppose you plan on spending $100/ac on restoring a forest on bare land you plan to buy. The project is projected to yield a harvest worth $2500/ac in 30 years. After which you sell the land for $400/ac. If you want to earn at least 6% rate of return, what is your willingness to pay for the land? Assume no other costs and revenues and that all values are in real terms. Show your work solving the problems a.) $490.28 b.) $265.63 C.) $636.27 d.) $404.92 e.) none of the above
PQR, Inc., is considering investing $160,000 in a machine that may last 4 years with no residual value. The new machine will generate annual operating income of $60,000 per year for 4 years. What is the Simple rate of return? OA. 12.5% B. 10.5% O C. 14% OD. 15.66%
ff

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