Builtrite is considering purchasing a new machine that would cost $60,000 and the machine would be depreciated (straightline) down to $0 over its five year life. At the end of five years it is believed that the machine could be sold for $15,000. Thecurrent machine being used was purchased 2 years ago at a cost of $50,000 and it is being depreciated down to zero over its 5year life. The current machine's salvage value now is $20,000. The new machine would increase EBDT by $42,000 annuallyand would require an additional $3000 in inventory. Builtrite's marginal tax rate is 34%What is the Initial Investment associated with the purchase of this machine?O $38,640O $36,600O $34,600O $39,600

The initial investment is amount of money required to begin the project and it consist of money…

Answered: Builtrite is considering purchasing a…

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

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DeYoung Entertainment Enterprises is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model. The old machine has a book value of $450,000 and a remaining useful life of 5 years. The current machine would be worn out and worthless in 5 years, but DeYoung can sell it now to a Halloween mask manufacturer for $135,000. The old machine is being depreciated by $90,000 per year for each year of its remaining life. If DeYoung doesn't replace the old machine, it will have no salvage value at the end of its useful life. The new machine has a purchase price of $775,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $105,000. The applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. Being highly efficient, it is expected to economize on electric power usage, labor, and repair costs, and, most importantly, to reduce the number of defective chickens. In total,…
Builtrite is considering purchasing a new machine that would cost $60,000 and the machine would be depreciated (straight line) down to $0 over its five-year life. At the end of four years, it is believed that the machine could be sold for $30,000. The current machine being used was purchased 3 years ago at a cost of $40,000 and it is being depreciated down to zero over its 5-year life. The current machine's salvage value now is $12,000. The new machine would increase EBDT by $56,000 annuall Builtrite's marginal tax rate is 34%. What is the TCF associated with the purchase of this new machine if it is sold at the end of year 4? Ⓒ$30,000 $23,880 $20,500 $19,800
DeYoung Entertainment Enterprises is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model. The current machine has a book value of $600,000 and is being depreciated by $120,000 per year over its remaining useful life of 5 years. The current machine would be worn out and worthless in 5 years, but DeYoung can sell it now to a Halloween mask manufacturer for $180,000. If DeYoung doesn't replace the current machine, it will have no salvage value at the end of its useful life. The new machine has a purchase price of $825,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $105,000. The applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. Being highly efficient, it is expected to economize on electric power usage, labor, and repair costs, and, most importantly, to reduce the number of defective chickens. In total, an annual savings of $185,000 will…
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The Bigbee Bottling Company is contemplating the replacement of one of its bottling machines with a newer and more efficient one. The old machine has a book value of $550,000 and a remaining useful life of 5 years. The firm does not expect to realize any return from scrapping the old machine in 5 years, but it can sell it now to another firm in the industry for $250,000. The old machine is being depreciated by $110,000 per year, using the straight-line method. The new machine has a purchase price of $1,100,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $160,000. The applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. It is expected to economize on electric power usage, labor, and repair costs, as well as to reduce the number of defective bottles. In total, an annual savings of $245,000 will be realized if the new machine is installed. The company's marginal tax rate is 35%, and it has a 12% WACC. a. What initial cash…
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Required: 1. Prepare a comparative income statement covering the next five years, assuming: a. The new machine is not purchased. b. The new machine is purchased. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.) Total expenses w Transcribed Text of purchasing the new machine Keep Old Machine S Minimum saving in costs 5 Years Summary Buy New Machine Ĉ Difference 2. Compute the net advantage of purchasing the new machine using only relevant costs in your analysis. (Do not round intermediate calculations.) Check my work 3. What is the minimum saving in annual operating costs that must be achieved in order for the president to consider buying the new machine?
Wildhorse Inc. wants to purchase a new machine for $38,790, 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 $2,200, and Wildhorse Inc. expects to sell it for that amount. The new machine will decrease operating costs by $9,000 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 PV table. (a) Determine the cash payback period. (Round cash payback period to 2 decimal places, e.g. 10.53.) Cash payback period (b) years Determine the approximate internal rate of return. (Round answer to O decimal places, e.g. 13%. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Internal rate of return %
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Freida Company is considering an asset replacement project ofreplacing a control device. This old control device has been fullydepreciated but can be sold for $5,000. The new control device, whichis more automated, will cost $42,000. The new device’s installation andshipping costs will total $16,000. The new device will be depreciatedon a straight-line basis over its 2-year economic life to an estimatedsalvage value of $0. The actual salvage value of this device at the endof 2-year period (That is, the market value of the device at the end of2-year period) is estimated to be $4,000. If the replacement project is accepted, Freida will require an initial working capital investment of$2,200 (that is, adding $2,200 initially to its net working capital).During the 1st year of operations, Freida expects its annual revenue toincrease from $72,800 to $90,000. After the 1st year, revenues fromthe replacement are expected to increase at a rate of $2,800 a year forthe remainder of the project…

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