DuPree Coffee Roasters, Inc., wishes to expand and modernize its facilities. The installed cost of a proposed computer-controlled automatic-feed roaster will be $130,000. The firm has a chance to sell its 4-year-old roaster for $35,000. The existing roaster originally cost $60,000 and was being depreciated using MACRS and a 7-year recovery period Percentage by recovery year* Recovery year 3 years 5 years 7 years 10 years 1 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 5 12% 9% 9% 6 5% 9% 8% 7 9% 7% 8 4% 6% 9 6% 10 6% 11 4% Totals 100% 100% 100% 100% DuPree is subject to a 21% tax rate. a. What is the book value of the existing roaster? b. Calculate the after-tax proceeds of the sale of the existing roaster. c. Calculate the change in net working capital using the following figures: Anticipated Changes in Current Assets and Current Liabilities Accruals −$20,000 Inventory +50,000 Accounts payable +40,000 Accounts receivable +70,000 Cash 0 Notes payable +15,000 d. Calculate the initial cash flow associated with the proposed new roaster.
DuPree Coffee Roasters, Inc., wishes to expand and modernize its facilities. The installed cost of a proposed computer-controlled automatic-feed roaster will be $130,000. The firm has a chance to sell its 4-year-old roaster for $35,000. The existing roaster originally cost $60,000 and was being depreciated using MACRS and a 7-year recovery period Percentage by recovery year* Recovery year 3 years 5 years 7 years 10 years 1 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 5 12% 9% 9% 6 5% 9% 8% 7 9% 7% 8 4% 6% 9 6% 10 6% 11 4% Totals 100% 100% 100% 100% DuPree is subject to a 21% tax rate. a. What is the book value of the existing roaster? b. Calculate the after-tax proceeds of the sale of the existing roaster. c. Calculate the change in net working capital using the following figures: Anticipated Changes in Current Assets and Current Liabilities Accruals −$20,000 Inventory +50,000 Accounts payable +40,000 Accounts receivable +70,000 Cash 0 Notes payable +15,000 d. Calculate the initial cash flow associated with the proposed new roaster.
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
Related questions
Question
DuPree Coffee Roasters, Inc., wishes to expand and modernize its facilities. The installed cost of a proposed computer-controlled automatic-feed roaster will be $130,000. The firm has a chance to sell its 4-year-old roaster for $35,000. The existing roaster originally cost $60,000 and was being
|
Percentage by recovery year*
|
||||
|
Recovery year
|
3 years
|
5 years
|
7 years
|
10 years
|
|
1
|
33%
|
20%
|
14%
|
10%
|
|
2
|
45%
|
32%
|
25%
|
18%
|
|
3
|
15%
|
19%
|
18%
|
14%
|
|
4
|
7%
|
12%
|
12%
|
12%
|
|
5
|
|
12%
|
9%
|
9%
|
|
6
|
|
5%
|
9%
|
8%
|
|
7
|
|
|
9%
|
7%
|
|
8
|
|
|
4%
|
6%
|
|
9
|
|
|
|
6%
|
|
10
|
|
|
|
6%
|
|
11
|
|
|
|
4%
|
|
Totals
|
100%
|
100%
|
100%
|
100%
|
DuPree is subject to a 21%
tax rate.
tax rate.
a. What is the book value of the existing roaster?
b. Calculate the after-tax proceeds of the sale of the existing roaster.
c. Calculate the change in net working capital using the following figures:
Anticipated Changes in Current Assets and Current Liabilities
Accruals −$20,000
Inventory +50,000
Accounts payable +40,000
Accounts receivable +70,000
Cash 0
Notes payable +15,000
d. Calculate the initial cash flow associated with the proposed new roaster.
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VIEWStep 2: a. Calculate Book Value of Existing Roaster:
VIEWStep 3: b. Calculate After Tax proceeds from the sale of Existing Roaster:
VIEWStep 4: c. Calculation of Change in Net Working Capital:
VIEWStep 5: d. Calculate initial cash flow associated with the proposed new roaster:
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