a. $40,000
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
10th Edition
ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter12: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 10P: Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6...
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Question
![QUESTION 1
A new machine is to be purchased for $200,000. The company believes it will generate $75,000 annually in
revenue due to the purchase of this machine. The company will have to train an operator to run this
machine and this will result in additional labor expenses of $25,000 annually. The new machine will be
depreciated using 5 years MACRS, even though the life of the project is 7 years, and the salvage value is
estimated to be $0 at the end of year 7. The tax rate is 40% and the company's MARR is 15%.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F597e76cd-55c0-4dd0-8e77-a13f93333b59%2F69248a60-051d-4521-a2ce-ed7665196c05%2Ffb7byb_processed.jpeg&w=3840&q=75)
Transcribed Image Text:QUESTION 1
A new machine is to be purchased for $200,000. The company believes it will generate $75,000 annually in
revenue due to the purchase of this machine. The company will have to train an operator to run this
machine and this will result in additional labor expenses of $25,000 annually. The new machine will be
depreciated using 5 years MACRS, even though the life of the project is 7 years, and the salvage value is
estimated to be $0 at the end of year 7. The tax rate is 40% and the company's MARR is 15%.
![How much additional tax (gains tax) will the company pay in year 7 if they sell the machine at that time for $100,000?
a. $40,000
b. $30,000
O c. $7,500
O d.0
QUESTION 7
What is the Internal Rate of Return (IRR) for this project?
а. 12%
b. 13.1%
С. 15.8%
d. 16.4%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F597e76cd-55c0-4dd0-8e77-a13f93333b59%2F69248a60-051d-4521-a2ce-ed7665196c05%2Fbsx62q4_processed.jpeg&w=3840&q=75)
Transcribed Image Text:How much additional tax (gains tax) will the company pay in year 7 if they sell the machine at that time for $100,000?
a. $40,000
b. $30,000
O c. $7,500
O d.0
QUESTION 7
What is the Internal Rate of Return (IRR) for this project?
а. 12%
b. 13.1%
С. 15.8%
d. 16.4%
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