An increasingly popular trend in mountain biking is to remove the chain and coast down the mountain. This has reduced demand for crank sets, chains, and derailleurs. As a result, Endo Mountain Bikes Inc. is shutting down its bicycle propulsion plant. It purchasedthe plant 2 years ago for $300,000. It can sell the plant today for $153,938.2. The plant is in Class 43 with a depreciation rate of 30%. When the plant is closed, Endo's net working capital will decrease by $50,000. EBITDA in the final year is $250,000. Endo's tax rateis 35%, and their cost of capital is 8%. What are the terminal year cash flows?$

The term "terminal year cash flows" describes the cash flows anticipated to take place at the…

Answered: An increasingly popular trend in…

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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St. Johns River Shipyards' welding machine is 15 years old, fully depreciated, and has no salvage value. However, even though it is old, it is still functional as originally designed and can be used for quite a while longer. A new welder will cost $181, 500 and have an estimated life of 8 years with no salvage value. The new welder will be much more efficient, however, and this enhanced efficiency will increase earnings before depreciation from $28,000 to $73, 500 per year. The new machine will be depreciated over its 5- year MACRS recovery period, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52 %, 11.52 %, and 5.76%. The applicable corporate tax rate is 25%, and the project cost of capital is 10%. What is the NPV if the firm replaces the old welder with the new one? Do not round intermediate calculations. Round your answer to the nearest dollar. Negative value, if any, should be indicated by a minus sign. F1 Inflation Adjustments The Rodriguez Company is…
Management of National Co. is considering whether to purchase a new model MX1 machine costing P460,000 or a new model MY2 machine costing P430,000 to replace a machine that was purchased 7 years ago for P258,000. The old machine was used to make product L360 until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model MY2 machine. It has less capacity than the new model MX1 machine, but its capacity is sufficient to continue making product L360. Management also considered, but rejected, the alternative of simply dropping product L360. If that were done, instead of investing P430,000 in the new machine, the money could be invested in a project that would return a total of P411,000. In making the decision to buy the model MY2 machine rather than the model MX1 machine, the differential cost was:
The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides. The steamer has 6 years of remaining life. If kept, the steamer will have depreciation expenses of $600 for 5 years and $310 for the sixth year. Its current book value is $3,310, and it can be sold on an Internet auction site for $3,850 at this time. If the old steamer is not replaced, it can be sold for $800 at the end of its useful life. Gilbert is considering purchasing the Side Steamer 3000, a higher-end steamer, which costs $11,500, and has an estimated useful life of 6 years with an estimated salvage value of $1,600. This steamer falls into the MACRS 5-years class, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The new steamer is faster and allows for an output expansion, so sales would rise by $2,000 per year; the new machine's much greater efficiency would reduce operating expenses by $1,600 per year. To support the…
Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $511,000 or a new model 220 machine costing $471,000 to replace a machine that was purchased 7 years ago for $503,000. The old machine was used to make product I43L until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model 220 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to continue making product I43L. Management also considered, but rejected, the alternative of simply dropping product I43L. If that were done, instead of investing $471,000 in the new machine, the money could be invested in a project that would return a total of $479,000. In making the decision to invest in the model 220 machine, the opportunity cost was: Multiple Choice $503,000 $471,000 $511,000 $479,000
Supreme Auto Service opened a new service center three decades ago. At the time the center was preparing to open, new equipment was purchased totaling $355,000. Residual value of the equipment was estimated to be $45,000 after 20 years. The company accountant has been using straight-line depreciation on the equipment. (a) How much was the annual depreciation for the original equipment (in $)? $ (b) If the hydraulic lift had originally cost $10,650, what would its residual value (in $) be after 20 years? $ (c) After six years of operation, the original hydraulic lift was replaced with a new model that cost $23,000. Book value was allowed for the old machine as a trade-in. What was the old hydraulic lift's book value when the replacement machine was bought (in $)? $ (d) What was the book value of the equipment inventory at the six-year point, substituting the new hydraulic lift for the original after the new lift had joined the inventory (in $)? Enter a number
Carla Vista Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for work on large homes and commercial properties. Last year, Carla Vista Roofing spent $77,400 refurbishing the lift. It has just determined that another $45,500 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $194,000. The company estimates that both lifts would have useful lives of 5 years. The new lift is more efficient and thus would reduce operating expenses from $110,000 to $84,200 each year. Carla Vista Roofing could also rent out the new lift for about $11,500 per year. The old lift is not suitable for rental. The old lift.could currently be sold for $28,500 if the new lift is purchased. The new lift and old lift are estimated to have salvage values of zero if used for another 5 years. Prepare an incremental analysis showing whether the company should repair or replace the equipment. (Enter negative amounts using…

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