A startup is considering buying a $295,000 piece of equipment. If it purchases the equipment, it will take a loan for the entire amount; the interest on the loan is 3%, and the loan will be repaid in 5 equal end of year payments. The startup estimates that the equipment would generate an additional $170,000 of revenue each year. At the end of 5 years, the equipment would have a salvage value of $21,000. The tax rate is 23%. Assuming a planning horizon of 5 years, that the equipment is depreciated using MACRS (3-year property class), and that the medical practice uses an after-tax MARR of 6%, compute the PW and determine whether the startup should invest in the equipment. 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 startup invest in the new equipment?

A startup is considering buying a $295,000 piece of equipment. If it purchases the equipment, it will take a loan for the entire amount; the interest on the loan is 3%, and the loan will be repaid in 5 equal end of year payments. The startup estimates that the equipment would generate an additional $170,000 of revenue each year. At the end of 5 years, the equipment would have a salvage value of $21,000. The tax rate is 23%. Assuming a planning horizon of 5 years, that the equipment is depreciated using MACRS (3-year property class), and that the medical practice uses an after-tax MARR of 6%, compute the PW and determine whether the startup should invest in the equipment. 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 startup invest in the new equipment?

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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Similar questions

New equipment costs $847,000 and is expected to last for five years with the salvage value of 10% of the equipment cost. During this time the company will use a 20% CCA rate. The new equipment will save $280,000 annually before taxes. If the company's required rate of return is 5.35%, determine the PVCCATS of the purchase. Assume a tax rate of 35%. Please show all the calculations by which you came up with the final answer.
A corporation is considering purchasing a machine that will save $150,000 per year before taxes. The cost of operating the machine (including maintenance) is $30,000 per year. The machine will be needed for five years, after which it will have a zero salvage value. MACRS depreciation will be used, assuming a three-year class life. The marginal income tax rate is 25%. If the firm wants 15% return on investment after taxes, how much can it afford to pay for this machine? Click the icon to view the MACRS depreciation schedules Click the icon to view the interest factors for discrete compounding when /- 15% per year. If the firm wants 15% return on investment after taxes, it can afford to pay thousand for this machine. (Round to one decimal place.)
You are evaluating a proposed acquisition of a new machine costing $50,000. While the machine is expected to last for 5 years, it falls into the MACRS 3-year class. Purchase of the machine would require an increase of net operating working capital of $2,000. The machine would increase the firm's revenue by $19,000 per year and its operating costs by $10,000 per year. The firm's marginal tax rate is 29 percent, and the project's cost of capital is 14 percent. What is the operating cash flow in Year 2? MACRS 3-year schedule is as follows: 33%, 45%, 15%, and 7% for years 1 to 4, respectively. Question 11 options: $11,675 $11,885 $12,095 $12,425 $12,585 $12,915
RadCo is considering two projects. The first, project A. has $400,000 income after the first year which increases by 8% each year for a total of 5 years. Project B has $450,000 income after the first year which increases by $25,000 each year for a total of 5 years. RadCo can only choose one project. Based on present worth today, which project should RadCo choose? The interest rate is 6% annual compounded annually.
Consider a firm A that wishes to acquire an equipment. The equipment is expected to reduce costs by $4200 per year. The equipment costs $25000 and has a useful life of 5 years. If the firm buys the equipment, they will depreciate it straight-line to zero over 5 years and dispose of it for nothing. They can lease it for 5 years with an annual lease payment of $5000. If the after-tax interest rate on secured debt issued by company A is 2% and tax rate is 35%, what is the Net Advantage to Leasing (NAL)?(keep two decimal places)
The initial investment in machinery would be $8 million immediately and the project is expected to last for three years. Investment in machinery receives tax allowable depreciation of 25% per annum on a straight-line basis. Allowances are receivable one year in arrears. The machinery will be sold at the end of the project for $5 million, in year 3 prices. And the answer is in the picture. How to calculate the answer of Tax Allowable depreciation?
Ilana Industries Incorporated needs a new lathe. It can buy a new high-speed lathe for $1 million. The lathe will cost $35,000 per year to run, but it will save the firm $125,000 in labor costs and will be useful for 10 years. Suppose that, for tax purposes, the lathe is entitled to 100% bonus depreciation. At the end of the 10 years, the lathe can be sold for $100,000. The discount rate is 8%, and the corporate tax rate is 21%. What is the NPV of buying the new lathe? Note: A negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to 2 decimal places.
You are considering a large CNC equipment purchase. You will need an initial deposit of $165,000. The annual revenues expected to come from the use of the CNC equipment are $85,000 starting in year 1 increasing by $4000 each year (i.e. $85,000 in year 1, $89,000 in year 2, etc.). Annual operating and maintenance costs are expected to be $35,000 every year starting in year 1. The equipment is expected to last for 15 years. What is the ROR? Question 6 Part C: Provide the ROR for the purchase. Enter your answer in the form 12.34 (for example, 12.34% would be entered as 12.34)
You are evaluating a proposed acquisition of a new machine costing $50,000. While the machine is expected to last for 5 years, it falls into the MACRS 3-year class. Purchase of the machine would require an increase of net operating working capital of $2,000. The machine would increase the firm's revenue by $15,000 per year and its operating costs by $7,000 per year. The firm's marginal tax rate is 30 percent, and the project's cost of capital is 14 percent. What is the operating cash flow in Year 1? MACRS 3-year schedule is as follows: 33%, 45%, 15%, and 7% for years 1 to 4, respectively. Question 11 options: $10,550 $10,720 $10,940 $11,180 $11,370 $11,670
You are evaluating a proposed acquisition of a new machine costing $50,000. While the machine is expected to last for 5 years, it falls into the MACRS 3-year class. Purchase of the machine would require an increase of net operating working capital of $2,000. The machine would increase the firm's revenue by $19,000 per year and its operating costs by $10,000 per year. The firm's marginal tax rate is 25 percent, and the project's cost of capital is 14 percent. What is the operating cash flow in Year 4? MACRS 3-year schedule is as follows: 33%, 45%, 15%, and 7% for years 1 to 4, respectively.
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.
A firm that purchases electricity from the local utility for $300,000 per year is considering installing a steam generator at a cost of $340,000. The cost of operating this generator would be $160,000 per year, and the generator will last for five years. If the firm buys the generator, it does not need to purchase any electricity from the local utility. The cost of capital is 11%. For the local utility option, consider five years of electricity purchases. For the generator option, assume immediate installation, with purchase and operating costs in the current year and operating costs continuing for the next four years. Assume payments under both options at the start of each year (i.e., immediate, one year from now,..., four years from now). What is the net present value of the more attractive choice?

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