Ayden's Toys, Incorporated, just purchased a $515,000 machine to produce toy cars.The machine will be fully depreciated by the straight-line method over its 8-yeareconomic life. Each toy sells for $27. The variable cost per toy is $9 and the firm incursfixed costs of $375,000 per year. The corporate tax rate for the company is 21 percent.The appropriate discount rate is 9 percent. What is the financial break-even point for theproject? (Do not round intermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.)Financial break-even pointunits

Financial break-even point refers to that point at which total revenue becomes equal to that of…

Answered: Ayden's Toys, Incorporated, just…

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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Benton is a rental car company that is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its rental cars over five years using the straight- line method. The new cars are expected to generate $210,000 per year in earnings before taxes and depreciation for five years. The company is entirely financed by equity and has a 22 percent tax rate. The required return on the company's unlevered equity is 11 percent and the new fleet will not change the risk of the company. The risk-free rate is 4 percent. a. What is the maximum price that the company should be willing to pay for the new fleet of cars if it remains an all-equity company? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Suppose the company can purchase the fleet of cars for $665,000. Additionally, assume the company can issue $450,000 of five-year debt to finance the project at the risk-free rate of 4 percent. All principal will be repaid…
The Target Copy Company is contemplating the replacement of its old printing machine with a new model costing $60,000. The old machine, which originally cost $40,000, has 6 years of expected life remaining and a current book value of $24,000 versus a current market value of $28,000. Target's corporate tax rate is 40 percent. If Target sells the old machine at market value, what is the initial after-tax cash outlay for the new printing machine? Round it a whole dollar and do not include the $ sign.
The Target Copy Company is contemplating the replacement of its old printing machine with a new model costing $80,000. The old machine, which originally cost $40,000, has 6 years of expected life remaining and a current book value of $25,000 versus a current market value of $17,000. Target's corporate tax rate is 40 percent. If Target sells the old machine at market value, what is the initial after-tax cash outlay for the new printing machine? Round it a whole dollar and do not include the $ sign.
Ayden's Toys, Inc.. just purchased a $530,000 machine to produce toy cars. The machine will be fully depreciated by the straight-line method over its 5-year economic life. Each toy sells for $30. The variable cost per toy is $14 and the firm incurs fixed costs of $390,000 per year. The corporate tax rate for the company is 24 percent. The appropriate discount rate is 12 percent. What is the financial break-even point for the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Financial break-even point units
Firm X needs 1 computer. Firm X can buy 1 computer for 3,059. The cost of debt for Firm X is 5%. The corporate tax equals 35%. Firm X follows a straight-line depreciation method and the economic life of the computer is 2 years. Compute the depreciation tax shield of year 2.
Assume a machine was purchased 5 years ago for $800,000 and has been 75% depreciated. The firm decides to sell this machine for $350,000. The firm's tax rate is 20%. Calculate how much net cash the sale of this equipment will generate for the firm. Answer rounded to the nearest whole dollar; for example 42,345 for your 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.)
Your firm is contemplating the purchase of a new $540,000 computer - based order entry system. The system will be depreciated straight - line to zero over its five-year life. It will be worth $52,000 at the end of that time. You will save $300,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $67,000 (this is a one-time reduction). If the tax rate is 23 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Quick Computing installed its previous generation of computer chip manufacturing equipment 3 years ago. Some of that older equipment will become unnecessary when the company goes into production of its new product. The obsolete equipment, which originally cost $40 million, has been depreciated straight-line over an assumed tax life of 5 years, but it can be sold now for $18 million. The firm’s tax rate is 30%. What is the after-tax cash flow from the sale of the equipment? Note: Enter your answer in millions rounded to 2 decimal places.
Quick Computing installed its previous generation of computer chip manufacturing equipment 3 years ago. Some of that older equipment will become unnecessary when the company goes into production of its new product. The obsolete equipment, which originally cost $37.00 million, has been depreciated straight-line over an assumed tax life of 5 years, but it can be sold now for $17.40 million. The firm’s tax rate is 30%. What is the after-tax cash flow from the sale of the equipment? (Enter your answer in millions rounded to 1 decimal place.) After-tax cash flow
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)

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