Drew owns and operates an onion packing plant. To help reduce costs on labor and to increase efficiency, Drew is considering purchasing an automatic 50 lb. bagging machine and a machine that automatically stacks the 50 lb. bags onto pallets. The cost of the two machines combined and their installation is $300,000. Drew will make a 20% down payment and finance the rest of the machinery with an amortized loan over 15 years at a 5.5% interest rate. Drew predicts that by using these two machines, his plant will be able to increase output, therefore increasing operating receipts by $30,000 per year. Also, this machinery will save him approximately $10,000 in labor costs each year by the increase in efficiency. However, other operating expenses such as electricity and insurance will increase by approximately $5,000 per year. Drew assumed a straight-line depreciation over 15 years and the life of the investment is 7 years. The real terminal value is $180,000 after the 7 years, and Drew requires a pretax 10% rate of return to capital. The marginal tax rate over the next 10 years is 25%, the rate of inflation is 3% and the risk premium is 1%. What is the nominal after-tax net return in year 6? a.$30,430.94 b.$35,000 c.$31,343.87 d.$28,684.08 What is the net present value? a.($4,541.74) b.$4,541.74 c.($19,071.16) d.$19,071.16 Drew owns and operates an onion packing plant. To help reduce costs on labor and to increase efficiency, Drew is considering purchasing an automatic 50 lb. bagging machine and a machine that automatically stacks the 50 lb. bags onto pallets. The cost of the two machines combined and their installation is $300,000. Drew will make a 20% down payment and finance the rest of the machinery with an amortized loan over 15 years at a 5.5% interest rate. Drew predicts that by using these two machines, his plant will be able to increase output, therefore increasing operating receipts by $30,000 per year. Also, this machinery will save him approximately $10,000 in labor costs each year by the increase in efficiency. However, other operating expenses such as electricity and insurance will increase by approximately $5,000 per year. Drew assumed a straight-line depreciation over 15 years and the life of the investment is 7 years. The real terminal value is $180,000 after the 7 years, and Drew requires a pretax 10% rate of return to capital. The marginal tax rate over the next 10 years is 25%, the rate of inflation is 3% and the risk premium is 1%. What is the nominal after-tax net return in year 6? a.$30,430.94 b.$35,000 c.$31,343.87 d.$28,684.08

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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Drew owns and operates an onion packing plant. To help reduce costs on labor and to increase efficiency, Drew is considering purchasing an automatic 50 lb. bagging machine and a machine that automatically stacks the 50 lb. bags onto pallets. The cost of the two machines combined and their installation is $300,000. Drew will make a 20% down payment and finance the rest of the machinery with an amortized loan over 15 years at a 5.5% interest rate. Drew predicts that by using these two machines, his plant will be able to increase output, therefore increasing operating receipts by $30,000 per year. Also, this machinery will save him approximately $10,000 in labor costs each year by the increase in efficiency. However, other operating expenses such as electricity and insurance will increase by approximately $5,000 per year. Drew assumed a straight-line depreciation over 15 years and the life of the investment is 7 years. The real terminal value is $180,000 after the 7 years, and Drew requires a pretax 10% rate of return to capital. The marginal tax rate over the next 10 years is 25%, the rate of inflation is 3% and the risk premium is 1%. What is the nominal after-tax net return in year 6? a.$30,430.94 b.$35,000 c.$31,343.87 d.$28,684.08 What is the net present value? a.($4,541.74) b.$4,541.74 c.($19,071.16) d.$19,071.16

Drew owns and operates an onion packing plant. To help reduce costs on labor and to increase efficiency, Drew is considering purchasing an automatic 50 lb. bagging machine and a machine that automatically stacks the 50 lb. bags onto pallets. The cost of the two machines combined and their installation is $300,000. Drew will make a 20% down payment and finance the rest of the machinery with an amortized loan over 15 years at a 5.5% interest rate. Drew predicts that by using these two machines, his plant will be able to increase output, therefore increasing operating receipts by $30,000 per year. Also, this machinery will save him approximately $10,000 in labor costs each year by the increase in efficiency. However, other operating expenses such as electricity and insurance will increase by approximately $5,000 per year. Drew assumed a straight-line depreciation over 15 years and the life of the investment is 7 years. The real terminal value is $180,000 after the 7 years, and Drew requires a pretax 10% rate of return to capital. The marginal tax rate over the next 10 years is 25%, the rate of inflation is 3% and the risk premium is 1%.

What is the nominal after-tax net return in year 6? a.$30,430.94 b.$35,000 c.$31,343.87 d.$28,684.08

What is the net present value? a.($4,541.74) b.$4,541.74 c.($19,071.16) d.$19,071.16

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