Builtrite is considering purchasing a new machine that would cost $75,000 and the machine would be depreciated (straight line) down to $0 over its five-year life. At the end of five years, it is believed th the machine could be sold for $40,000. The current machine being used was purchased 2 years ago at a cost of $50,000 and it is being depreciated down to zero over its 5-year life. The current machine's salvage value now is $35,000. Also, a higher level of inventory would be needed in the amount of $2000 for the new machine. The new machine would increase EBDT by $56,000 annually. Builtrite's marginal tax rate is 34%. What is the TCF associated with the purchase of this machine?
Builtrite is considering purchasing a new machine that would cost $75,000 and the machine would be depreciated (straight line) down to $0 over its five-year life. At the end of five years, it is believed th the machine could be sold for $40,000. The current machine being used was purchased 2 years ago at a cost of $50,000 and it is being depreciated down to zero over its 5-year life. The current machine's salvage value now is $35,000. Also, a higher level of inventory would be needed in the amount of $2000 for the new machine. The new machine would increase EBDT by $56,000 annually. Builtrite's marginal tax rate is 34%. What is the TCF associated with the purchase of this machine?
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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Am. 395.
Transcribed Image Text:Builtrite is considering purchasing a new machine that would cost $75,000 and the machine would be depreciated (straight
line) down to $0 over its five-year life. At the end of five years, it is believed th the machine could be sold for $40,000. The
current machine being used was purchased 2 years ago at a cost of $50,000 and it is being depreciated down to zero over its
5-year life. The current machine's salvage value now is $35,000. Also, a higher level of inventory would be needed in the
amount of $2000 for the new machine. The new machine would increase EBDT by $56,000 annually. Builtrite's marginal tax
rate is 34%.
What is the TCF associated with the purchase of this machine?
$26,400
O $12,900
O$28,400
O $22,300
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