Andres Gimenez is considering purchasing the DoublePlay 3000 machine. The machine will costAhmed $100,000 and he estimates it will last two years after which he will sell the machine for$30,000.The machine is considered specialty equipment under MACRS depreciation and depreciatedover 4 years as shown below.The tax rate is 40%.RevenueFixed CostsSG&A expensesDepreciationIEBITTaxesYear 1 Year 2$125,000 $ 125,000$ 40,000 $ 40,00020,00020,00033,33344,450$ 31,667 $ 20,5508,22012,667Net Income$19,000 $ 12,3301. What is the net present value of the investment, assuming an interest rate of 10%?2. What is the internal rate of return of the investment?

Andres Gimenez is considering purchasing the DoublePlay 3000 machine. The machine will cost Ahmed $100,000 and he estimates it will last two years after which he will sell the machine for $30,000. The machine is considered specialty equipment under MACRS depreciation and depreciated over 4 years as shown below. The tax rate is 40%. I EBIT Taxes Year 1 $125,000 Year 2 $125,000 Revenue Fixed Costs $ 40,000 $40,000 SG&A expenses 20,000 Depreciation 33,333 20,000 44,450 $ 31,667 $ 20,550 12,667 8,220 Net Income $19,000 $12,330 1. What is the net present value of the investment, assuming an interest rate of 10% ? 2. What is the internal rate of return of the investment?

Andres Gimenez is considering purchasing the DoublePlay 3000 machine. The machine will cost Ahmed $100,000 and he estimates it will last two years after which he will sell the machine for $30,000. The machine is considered specialty equipment under MACRS depreciation and depreciated over 4 years as shown below. The tax rate is 40%. I EBIT Taxes Year 1 $125,000 Year 2 $125,000 Revenue Fixed Costs $ 40,000 $40,000 SG&A expenses 20,000 Depreciation 33,333 20,000 44,450 $ 31,667 $ 20,550 12,667 8,220 Net Income $19,000 $12,330 1. What is the net present value of the investment, assuming an interest rate of 10% ? 2. What is the internal rate of return of the investment?

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

See similar textbooks

Similar questions

A new machine can be purchased for $1,500,000. It will cost $45,000 to ship and $55,000 to install the machine. The new machine will replace an older machine that is fully depreciated and will be sold for $125,000. The firm’s income tax rate is 40%. What is the initial outlay (IO) for the new machine? $1,525,000 $1,600,000 $1,675,000 $1,725,000
Talia’s Tutus bought a new sewing machine for $90,000 that will be depreciated over 5 years using double-declining-balance depreciation with a switch to straight-line. a. Find the depreciation charge each year. b. If the sewing machine is sold after 2 years for $55,000, what will be the after-tax proceeds on the sale if the firm’s tax bracket is 35%?
Speed Queen Laundromat faces a 40% tax rate and uses a 12.7% discount rate. Speed Queen is purchasing a new $49,800 touchscreen laundry system that will raise annual sales by $5,800 and lower annual operating costs by $14,300. This system, which will have no salvage value, is expected to have a 7-year life and will be depreciated (straight-line) to zero. What is the NPV of purchasing the new laundry system? a. −$14,329 b. $5,148 c. $16,742 d. $23,094 e. −$1,204
mani.5
Corf's Dog House is considering the installation of a new computerized pressure cooker for hot dogs. The cooker will increase sales by $9,500 per year and will cut annual operating costs by $03.300. The system will cost $50100 to purchase and install. This system is expected to have a 5-year life and will be depreciated to zero using straight-line depreciation and have no salvage value. The tax rate is 40 percent and the required return is 30.8 percent. What is the NPV of purchasing the pressure cooker? Mutiple Choice O ● O $23,047 -40335 $5.603 -$2674 $6300
A project has to sell a machine that is obsolete. The market department finds a buyer who is willing to pay $100, 000 for the machine. The machine was purchased 4 years ago for $1.1 million. The accounting department notes that the depreciation method for this machine is straight line, and the machine will be depreciated to zero over a five year time period after purchase. What is the machine's after - tax salvage value? Tax rate is 21%. Question 1 options: $1, 635.24 $2, 314.05 $142,000.00 - $2,784.62$289.26
Provide please answer in text Format
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.
Karsted Air Services is now in the final year of a project. The equipment originally cost $23 million, of which 100% has been depreciated. Karsted can sell the used equipment today for $6 million, and its tax rate is 20%. What is the equipment's after-tax salvage value? Write out your answer completely. For example, 13 million should be entered as 13,000,000. Round your answer to the nearest dollar. $
Raiders Restaurant is considering the purchase of a $10,000,000 flat-top grill. The grill has an economic life of 6 years and will be fully depreciated using the straight-line method. The grill is expected to produce 600,000 tacos per year for the next 6 years, each taco costing $4 to make and priced at $11. Assume the discount rate is 12% and the tax rate is 21%. The restaurant expects the market value of the grill to be $0, 6 years from now. Calculate the book value of the grill at the end of year 3. (Round to 2 decimals)
Your firm needs a machine which costs $120,000, and requires $33,000 in maintenance for each year of its 5 year life. After 5 years, this machine will be replaced. The machine falls into the MACRS 5-year class life category. Assume a tax rate of 35 percent and a discount rate of 15 percent. What is the depreciation tax shield for this project in year 5?
The Kings Inn Resort purchased three delivery carts 5 years ago. The delivery carts initially cost $60,000 and are depreciated on a straight line basis over 10 years. The effective tax rate for the company is 40%. Part A: What is the net cash flow if they sell the used carts for $36,000? Part B: What are the net cash flows if they sell the used carts for $30,000? Part C: What is the net cash flow if they sell the used carts for $25,000

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS