f using the 15th edition of the text (or an earlier edition), refer to the Web Tax Appendix to correctly answer this question. Heskel Inc. is considering a new investment whose data are shown below. The required equipment will be used for 3 years during the project's life. The equipment qualifies for bonus depreciation, so it will be fully depreciated at the time of purchase. It will have a positive salvage value at the end of Year 3, when the project would be terminated. Also, some new net operating working capital would be required, but it would be recovered at the end of the project's life. Revenues and operating costs are expected to be constant over the project's 3-year life. What is the project's NPV? WACC 10% Purchase price of equipment $675, 000 Required new NOWC $80,000 Sales revenues $750,000 Operating costs $450,000 Before tax salvage value $125,000 Tax rate 25% a. $ 33,396.88 b. $ 43,727.46 c. S

f using the 15th edition of the text (or an earlier edition), refer to the Web Tax Appendix to correctly answer this question. Heskel Inc. is considering a new investment whose data are shown below. The required equipment will be used for 3 years during the project's life. The equipment qualifies for bonus depreciation, so it will be fully depreciated at the time of purchase. It will have a positive salvage value at the end of Year 3, when the project would be terminated. Also, some new net operating working capital would be required, but it would be recovered at the end of the project's life. Revenues and operating costs are expected to be constant over the project's 3-year life. What is the project's NPV? WACC 10% Purchase price of equipment $675, 000 Required new NOWC $80,000 Sales revenues $750,000 Operating costs $450,000 Before tax salvage value $125,000 Tax rate 25% a. $ 33,396.88 b. $ 43,727.46 c. S

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 real-estate developer seeks to determine the most economical height for a new office building, which will be sold after five years. The developer uses an interest rate of i for its evaluation. The relevant net revenues and salvage values on after-tax basis are given below: Building Cost Annual Lease Revenue Resale Value 2 floors 3 floors 4 floors 5 floors $500,000 $750,000 $1,250,000 $2,000,000 $199,100 $169,200 $149,200 $378,150 $600,000 $900,000 $2,000,000 $3,000,000 (a) The developer is uncertain about the exact interest rate i, but is certain that it is in the range from 10% to 25%. For each value of i = {10%, 15%, 20%, 25%}, determine which building option is the most economical. (b) Suppose that the developer's interest rate turns out to be 15%. If the the resale costs are 30% overestimated for each height plan (i.e., the resale value turns out to be 70% of $600,000 for the 2 floors, 70% of $900,000, and so on), how does that scenario affect the PW values for the floor options?
An asset used in a four-year project falls in the five-year MACRS class (MACRS schedule) for tax purposes. The asset has an acquisition cost of $7,800,000 and will be sold for $1,860,000 at the end of the project. If the tax rate is 25 percent, what is the aftertax salvage value of the asset? Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.
Mansour, a farmer in BaniSweif, is considering the purchase of a new soil cultivating machine, either the type A or B. The minimum acceptable rate of return is 0.08. The table below provides all the necessary information for the two types. A B Initial Cost Annual Operation and Maintenance cost $6700 $16900 $1500 $1200 Annual Benefit $4000 $4500 $1000 $3500 Salvage Value Useful Life, in years 3 6 Determine the rate of return on machine A What is the incremental rate of return (M/c B - M/c A)? Using the above analysis, decide which machine should be bought: 1 for Machine A 2 for Machine B
Topic: Depreciation Solve with detailed written solution.
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Required information [The following information applies to the questions displayed below.] Metro Car Washes, Inc. is reviewing an investment proposal. The initial cost as well as the estimate of the book value of the investment at the end of each year, the net after-tax cash flows for each year, and the net income for each year are presented in the following schedule. The salvage value of the investment at the end of each year is equal to its book value. There would be no salvage value at the end of the investment's life. Year 0 1 2 3 4 5 Initial Cost and Book Value $345,000 230,000 138,000 69,000 23,000 0 Annual Net After-Tax Cash Flows $162,000 141,000 120,000 99,000 78,000 Annual Net Income $47,000 49,000 51,000 53,000 55,000 Management uses a 14 percent after-tax target rate of return for new investment proposals. Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: 1. Compute the project's payback period. Assume that the cash flows in…
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Required Information [The following information applies to the questions displayed below.] Project A requires a $365,000 initial investment for new machinery with a five-year life and a salvage value of $42,000. The company uses straight-line depreciation. Project A is expected to yield annual net income of $25,300 per year for the next five years. Compute Project A's payback period. Choose Numerator: Payback Period 7 Choose Denominator: = Payback Period Payback period =
6
An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $5.7 million and will be sold for $1.8 million at the end of the project. If the tax rate is 21 percent, what is the aftertax salvage value of the asset? Refer to the MACRS schedule. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567) Aftertax salvage value
Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
An asset used in a 4-year project falls in the 5-year MACRS class for tax purposes. The asset has an acquisition cost of $9,300,000 and will be sold for $2,760,000 at the end of the project. If the tax rate is 22 percent, what is the aftertax salvage value of the asset? Refer to (MACRS schedule) (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567) Aftertax salvage value 4

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