Chevron Chemical Company in Texas, acquired new equipment for its polyethylene processing line. The equipment has a first cost of $400,000, a life of only 3 years, and a salvage value of 10% of its first cost. a. Complete the following After-Tax CF Table for the above equipment investment. Effective T is 0.35 (put numbers only without $ sign) Year NOI Pand S CFBT TI Taxes (35%) CFAT -400,000 -400,000 -400,000 1 210,000 210,000 133,320 76,680 26,838 2 210,000 210,000 177,800 32,200 198,730 3 210,000 40,000 59,240 52,766 197,234 b. Put the formula (equation) for calculating the PW of the CFAT at MARR = 10% substituting all variables (use factor notation) PW = -400000 +

Chevron Chemical Company in Texas, acquired new equipment for its polyethylene processing line. The equipment has a first cost of $400,000, a life of only 3 years, and a salvage value of 10% of its first cost. a. Complete the following After-Tax CF Table for the above equipment investment. Effective T is 0.35 (put numbers only without $ sign) Year NOI Pand S CFBT TI Taxes (35%) CFAT -400,000 -400,000 -400,000 1 210,000 210,000 133,320 76,680 26,838 2 210,000 210,000 177,800 32,200 198,730 3 210,000 40,000 59,240 52,766 197,234 b. Put the formula (equation) for calculating the PW of the CFAT at MARR = 10% substituting all variables (use factor notation) PW = -400000 +

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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TransITRI is a transportation company with a recent need of a new construction equipment at a first cost of $78,000 (Equation (1)), zero salvage value, and a cash flow before taxes (CFBT) per year t that follows Equation (2). CFBT = $30,000 – 3,000t (for t = 1, 2, … T) (1) CFBT = - $78,000 (for t =0) (2) Calculate the PW if the economic life of similar machinery is 9 years, while the MARR is 16%
TransITRI is a transportation company with a recent need of a new construction equipment at a first cost of $78,000 (Equation (1)), zero salvage value, and a cash flow before taxes (CFBT) per year t that follows Equation (2). CFBT = $30,000 – 3,000t (for t = 1, 2, … T) (1) CFBT = - $78,000 (for t =0) (2) Calculate the PW if the economic life of similar machinery is 7 years, while the MARR is 16%
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TransITRI is a transportation company with a recent need of a new construction equipment at a first cost of $78,000 (Equation (1)), zero salvage value, and a cash flow before taxes (CFBT) per year t that follows Equation (2). CFBT = $30,000 – 3,000t (for t = 1, 2, … T) (1) CFBT = - $78,000 (for t =0) (2) Calculate the PW if the economic life of similar machinery is 8 years, while the MARR is 12%
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Amazon in OKC has just invested $250,000 in equipment having a negligible salvage value (SV 0) regardless of when the equipment if replaced. O&M costs equal $50,000 the first year and increase $10.000 per year. Based on a MARR of 10% What is the Capital Recovery (CR) cost for Year 4? A. $86,428 B. $60,317 C. $47,320 D. $39,569
A Company is considering a proposal of installing a drying equipment. The equipment would involve a Cash outlay of 6,00,000 and net Working Capital of 80,000. The expected life of the project is 5 years without any salvage value. Assume that the company is allowed to charge depreciation on straight-line basis for Income-tax purpose. The estimated before-tax cash inflows are given below: Year Before-tax Cash inflows ('000) 1 2 3 4 5 240 275 210 180 160 The applicable Income-tax rate to the Company is 35%. If the Company's opportunity Cost of Capital is 12%, calculate the equipment's discounted payback period, payback period, net present value and internal rate of return. The PV factors at 12%, 14% and 15% are: Year 1 2 3 4 5 PV factor at 12% 0.8929 0.7972 0.7118 0.6355 0.5674 PV factor at 14% 0.8772 0.7695 0.6750 0.5921 0.5194 PV factor at 15% 0.8696 0.7561 0.6575 0.5718 0.4972 10-22
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The LJB Company must replace a freezer and is trying to decide betweenthe following two alternatives:Item Freezer A Freezer BInvestment required ($29,000) ($25,000)Annual electrical bill (3,000) (4,000)Salvage value 6,000 5,000Project life in years 11 11The LJB Company’s cost of capital is 8 percent.Which investment provides LJB with the lowest total cost?
Consider the following facts and do not consider the effect of income taxes: Initial cost of equipment Estimated life Salvage value Annual cash inflows Estimated cost of capital $45,000 5 years $5,000 $63,300. O $14,890. $59,895. O $18,319. $15,000 The net present value of the equipment is: 8%
Borrowing cost (IAS-23) If the acquisition/construction of asset is financed through borrowings then any interest paid on such debt would be capitalized in the value of asset. Test your understanding.3 Acquisition Costs of Realty: Pollachek Co. purchased land as a factory site for $450,000. Process of tearing down two old buildings on the site and constructing the factory required 6 months, The company paid $42,000 to raze the old buildings and sold salvaged lumber and brick for $6,300. Legal fees of $1,850 were paid for title investigation and drawing the purchase contract. Pollachek paid $2,200 to an engineering firm for a land survey, and $65,000 for drawing the factory plans. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $1,500, and a liability insurance premium paid during construction was $900. The contractor's charge for construction was $2,740,000. The company paid the contractor in two installments: $1,200,000 at…
A project using passive heating/cooling design con- a cepts to reduce energy costs requires an investment of $125,000 in equipment (straight-line deprecia- tion with a 10-year depreciable life and $0 salvage value), and $30,000 in labor (not depreciable). At the end of 10 years, the project will be terminated. Assuming a combined tax rate of 34% and after- tax MARR of l15%, determine the project's after-tax present worth.

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