A portable concrete test instrument used in construction for evaluating and profiling concrete surfaces (MACRS-GDS 5-year property class) is under consideration by a construction firm for $22,500. The instrument will be used for 6 years and be worth $3,000 at that time. The annual cost of use and maintenance will be $9,500. Alternatively, a more automated instrument (same property class) available from the manufacturer costs $28,500, with use and maintenance costs of only $9,000 and salvage value after 6 years of $2,000. The marginal tax rate is 25%, and MARR is an after-tax 12%. Determine which alternative is less costly, based upon comparison of after-tax annual worth. Show the AW values used to make your decision: Alternative 1: $

A portable concrete test instrument used in construction for evaluating and profiling concrete surfaces (MACRS-GDS 5-year property class) is under consideration by a construction firm for $22,500. The instrument will be used for 6 years and be worth $3,000 at that time. The annual cost of use and maintenance will be $9,500. Alternatively, a more automated instrument (same property class) available from the manufacturer costs $28,500, with use and maintenance costs of only $9,000 and salvage value after 6 years of $2,000. The marginal tax rate is 25%, and MARR is an after-tax 12%. Determine which alternative is less costly, based upon comparison of after-tax annual worth. Show the AW values used to make your decision: Alternative 1: $

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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The XYZ-Delivery Company has two options for its delivery truck. The first option is to purchase a new truck for $15,000. The new truck will have a useful life of 5 years and a residual value of $2,000. Operating costs for the new truck will be $200. The second option is to overhaul its existing truck. The cost of the overhaul will be $8,000. The overhauled truck will have a useful life of 5 years and a residual value of $0. Operating costs for the overhauled truck will be $600. The overhaul costs will be expensed immediately while the costs of the new truck will be depreciated for 5 years using straight line method to zero salvage value. Using XYZ's discount rate of 5%, which option is better and by what amount?
A piece of land may be purchased for $610,000 to be strip-mined for the underlying coal. Annual net income will be $200,000 for 10 years. At the end of the 10 years, the surface of the land will be restored as required by a federal law on strip-mining. The reclamation will cost $1.5 million more than the resale value of the land after it is restored. Using a 10% interest rate, determine whether the project is desirable.
AAA Trucking, Inc. has hired you as a consultant to evaluate the proposed acquisition of a new electric autonomous driving truck for a pilot project. The truck's base price is $600,000. Due to the technical complexity of the vehicle, the company will have to pay $1,000 to train a "driver" before the truck can be put into operation. Assume the truck falls into the MACRS 5-year class. If purchased for this pilot project, the company expects to use the truck for two years and then sell it at the end of the second year. The expected market value of the truck at the end of the second year is $310,000. Use of the truck will require an increase in inventory of $4,000 and accounts payable are expected to increase by $3,000. The truck is expected to increase the firm's revenue by $145,000 per year and it is expected to increase operating expenses by $75,000 per year. Last month a consultant was paid $2,000 to do a similar analysis and recommended that the truck be purchased, the firm has hired…
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The truck's base price is $600,000. Due to the technical complexity of the vehicle, the company will have to pay $1,000 to train a "driver" before the truck can be put into operation. Assume the truck falls into the MACRS 5-year class. If purchased for this pilot project, the company expects to use the truck for two years and then sell it at the end of the second year. The expected market value of the truck at the end of the second year is $310,000. Use of the truck will require an increase in inventory of $4,000 and accounts payable are expected to increase by $3,000. The truck is expected to increase the firm's revenue by $145,000 per year and it is expected to increase operating expenses by $75,000 per year. Last month a consultant was paid $2,000 to do a similar analysis and recommended that the truck be purchased, the firm has hired you for a second opinion. The firm's marginal tax rate is 25 percent and the cost of capital is 10 percent. 5-Year MACRS RATES Year 1 Year 2 Year 3…
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,130,000, and it would cost another $18,000 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $578,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $19,000. The sprayer would not change revenues, but it is expected to save the firm $359,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. a. What is the Year-0 net cash flow? $ b. What are the net operating cash flows in Years 1, 2, and 3? Year 1:$ Year 2:$ Year 3:$ c. What is the additional Year-3 cash flow (i.e, the…
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A company in the region is planning for a new project that requires an investment in new machinery. The cost of machinery is RO 20,000. The total expenses to transport and install the machinery will be RO 5,000. Since the machinery uses the latest technology, it will result in a reduction of overall cost by RO 10,000. The company offers free maintenance for the machinery. Savings on account of the free maintenance will be RO 1,000 every year. The annual contract requires the company to pay RO 1,500 every year for vendor support. The total life of the project will be five years and it is expected that the machinery can be disposed at the end for 2,000. Straight-line depreciation is used by the company. The effective tax rate is 15%. Calculate Relevant Cash Flows for Capital Project 9050 9010 8765 9500

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