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.
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 =
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
(c) TYM Music Corporation is considering the purchase of a new soundboard, used inrecording studios to improve sound effects. The new soundboard requires an initialinvestment of $150,000. A fully depreciated existing soundboard may be disposed offor $40,000 pre-tax. The purchase will have a five-year life and is expected to produceadditional revenue of $65,000 per year. Expenses other than depreciation will be$15,000 per year. The new soundboard will be depreciated to zero over five years, butit is expected to be sold for $20,000 and has a 35% tax rate.(i) Calculate the net initial outlay for the new soundboard purchase. (ii) Calculate the operating cash flow for years 1 to 4.(iii) Calculate the total cash flow at the end of year five (operating cashflow for year 5 plus terminal cash flow).
6) A company is considering purchasing a new automated machine that is expected to generate an additional income of $125,000 annually. The equipment will have an initial cost of $187,500 and estimated annual operating and maintenance costs of $50,000. Its estimated salvage value at the end of its useful life of 4 years will be $37,500. The equipment is a MACRS-GDS 3-year property for calculating depreciation deductions. The effective tax rate is 35%. For this new machine, determine the after-tax cash flow for each year of operation. (Round off values to the nearest dollar) ΕΟΥ BTCF a) 0 1 2 3 4 MACRS-GDS Deduction Taxable Income Tax ATCF b) (8 points) If the after-tax MARR is 10% per year compounded annually, compute the PW of the after-tax cash flows. Based on this PW, would you recommend the purchase of this new equipment?
Provide step by step manual solution, given, and depreciation table for below mentioned problem. Make sure yet that your answer is the same as the given answer before sending your solution. An asset costing P50,000 has a life expectancy of 6 years and an estimated salvage value of P8,000. Calculate the depreciation charge at the end of the fourth period using fixed-percentage method. Answer. P5,263.87
The following data are from an after-tax cash flow analysis in year 1 for anew MACRS 5-year property. How much money would be saved in year 1 if 100% bonus depreciation is used? Initial Investment = $180,000 Regular MACRS Depreciation Deduction in Year 1 = $36,000 Before-Tax-and-Loan Cash Flow = $280,000 Loan Principal Payment = $17,500 Interest on Loan = $5,650. a. $30,240 b. $75,600 c. $37,800 d. $36,000.

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