13Equipment associated with manufacturing small railcars had a first cost of $160,000 with an expected salvage value of $30,000at the end of its 5-year life. The revenue was $622,000 in year 2, with operating expenses of $98,000. If the company'seffective tax rate was 34%, what would be the difference in taxes paid in year 2 if the depreciation method were straight lineinstead of Modified Accelerated Cost Recovery System (MACRS)? The MACRS depreciation rate for year 2 is 32%.The difference in taxes paid is determined to be $

Depreciation is the systematic allocation of the cost of a tangible asset over its useful life. It…

Answered: Equipment associated with manufacturing…

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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A $63,000 machine with a 6-year class life was purchased 2 years ago. The machine will now be sold for $50,000 and replaced with a new machine costing $91,000, with a 10-year class life. The new machine will not increase sales, but will decrease operating costs by $7,000 per year. Simplified straight line depreciation is employed for both machines, and the marginal corporate tax rate is 34 percent. What is the incremental annual cash flow associated with the project?
The manufacture of folic acid is a competitive business. A new plant costs $100,000 and lasts for three years. The cash flow from the plant is as follows: Year-1: +43,300, Year-2: $43,300 and Year-3 = 58,300. (Assume there is no tax.) If the salvage value of the plant at the end of year is $66,700, would you scrap the plant at the end of year one?
Medavoy Company is considering a new project that complements its existing business. The machine required for the project costs $4.5 million. The marketing department predicts that sales related to the project will be $2.67 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated to zero over its 4-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 30 percent of sales. The company also needs to add net working capital of $190,000 immediately. The additional net working capital will be recovered in full at the end of the project’s life. The corporate tax rate is 23 percent and the required return for the project is 13 percent. What is the value of the NPV for this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)
Walton Manufacturing Company has an opportunity to purchase some technologically advanced equipment that will reduce the company's cash outflow for operating expenses by $1,287,000 per year. The cost of the equipment is $5,187,854.53. Walton expects it to have a 9-year useful life and a zero salvage value. The company has established an investment opportunity hurdle rate of 19 percent and uses the straight-line method for depreciation. (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. W Required a. Calculate the internal rate of return of the investment opportunity. Note: Do not round intermediate calculations. b. Indicate whether the investment opportunity should be accepted. a. Internal rate of return b. Should the investment opportunity be accepted? Prev 1 of 15 「買買買 --- MacBook Air Next >
What is the per-year depreciation amount if straight-line depreciation is used? Suppose a business purchases a machine for $10,000. The useful life is estimated to be 5 years, and the income tax rate is 25%. In the first year, the company makes $5,000 worth of sales using the machine, and operational expenses were $1,500.
Your company has to liquidate some equipment that is being replaced. The originally cost of the equipment is $100,000. The firm has deprecated 65% of the original cost. The salvage value of the equipment today is $50,000. The firm has a tax rate of 30%. What is the equipment’s after-tax net salvage value? Please show your work.
A $76,000 machine with a 10-year class life was purchased 3 years ago. The machine will now be sold for $31,000 and replaced with a new machine costing $51,000, with a 5-year class life. The new machine will not increase sales, but will decrease operating costs by $ 16,000 per year. Simplified straight line depreciation is employed for both machines, and the marginal corporate tax rate is 34 percent. What is the initial outlay for the project? ALTHOUGH THE INITIAL OUTLAY IS NEGATIVE, PLEASE ENTER YOUR ANSWER AS A POSITIVE SIGN. IN OTHER WORDS, IF YOUR ANSWER IS-10,000, ENTER IT AS 10,000. DO NOT ENTER THE DOLLAR SIGN
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HappyDay is planning to invest $20 million and acquire a new production line at the beginning of Year 3. Also, the company has intents to change the depreciation policy in order to manage the costs of production and income tax expenses better. Your new boss asks you to calculate depreciation expenses using straight-line, double-declining balance and units-of-production methods to determine which of the methods is better. The new asset is expected to have a 10-year useful life. The total production is estimated at 500,000 tons. With respect to the new asset, HappyDay is expecting to generate the following results in Years 3-5. Year 3 Year 4 Year 5 Expected amount of production, tons 45,000 65,000 60,000 Net Sales, thousand $ 85,000 120,000 110,000 Expenses (before depreciation and income tax), thousand $ 45,000 80,000 73,000 Income tax rate, % 30 30 30 Answer the following question 2. Compute HappyDay’s Total Expenses, Income…
You are evaluating two different machines. - Machine A costs $1,000,000, has a three-year life with expected salvage value in three years of $448,000, and has pre-tax operating costs of $150,000 per year. - Machine B costs $1,200,000, has a five-year life with expected salvage value in five years of $344,064, and has pre -tax operating costs of $200,000 per year. - Both machines are in Class 8 (CCA rate of 20 percent per year). - If your tax rate is 40 percent and your discount rate is 10 percent, compute the EAC (equivalent annual cost) for both machines. Which do you prefer?
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