ADAM COMPANY HAS AN OLD MACHINE THAT COST WHEN PURCHASED $150000, THE FIRM DEPRECIATION METHOD IS MACRS FOR 3 YEARS (PERCENTAGED Y1=33% Y2 45%,Y3=15% Y4=7%) THE EXPECTED SELLING PRICE OF THE OLD MACHINE IS 75000 ADAM CAN BUYA NEW MACHINE WITH PRICE $160000 AND INSTALLATION COST OF $7000 AND SHIPPMENT $ 4000 IT WILL ALSO BE DEPRECIATED USING MACRS. THE MACHINE REQUIRES RECEIVABLES TO INCREASE 12400 INVENTORY 16000 AND ACCOUNT PAYABLE WILL INCREASE BY $16000 REVENUES ARE EXPECTED TO BE 110000 AND EXPENSES ARE 60% OF REVENUES FOR THE 3 YEARS IF THE NEW MACHINE CAN BE SOLD AT THE END OF THE 3 YEARS FOR $24000 AND TAXES IS 38%,K IS 0.1

ADAM COMPANY HAS AN OLD MACHINE THAT COST WHEN PURCHASED $150000, THE FIRM DEPRECIATION METHOD IS MACRS FOR 3 YEARS (PERCENTAGED Y1=33% Y2 45%,Y3=15% Y4=7%) THE EXPECTED SELLING PRICE OF THE OLD MACHINE IS 75000 ADAM CAN BUYA NEW MACHINE WITH PRICE $160000 AND INSTALLATION COST OF $7000 AND SHIPPMENT $ 4000 IT WILL ALSO BE DEPRECIATED USING MACRS. THE MACHINE REQUIRES RECEIVABLES TO INCREASE 12400 INVENTORY 16000 AND ACCOUNT PAYABLE WILL INCREASE BY $16000 REVENUES ARE EXPECTED TO BE 110000 AND EXPENSES ARE 60% OF REVENUES FOR THE 3 YEARS IF THE NEW MACHINE CAN BE SOLD AT THE END OF THE 3 YEARS FOR $24000 AND TAXES IS 38%,K IS 0.1

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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Crane Inc. wants to purchase a new machine for $40,700, excluding $1,500 of installation costs. The old machine was purchased 5 years ago and had an expected economic life of 10 years with no salvage value. The old machine has a book value of $2,300, and Crane Inc. expects to sell it for that amount. The new machine will decrease operating costs by $9,700 each year of its economic life. The straight-line depreciation method will be used for the new machine for a 6-year period with no salvage value. Click here to view the factor table. (a) Determine the cash payback period. (Round cash payback period to 2 decimal places, e.g. 10.53.) Cash payback period (b) Determine the approximate internal rate of return. (Round answer to 0 decimal places, e.g. 13%. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Internal rate of return (c) years The investment Assuming the company has a required rate of return of 10%, determine whether the new machine should…
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