**Problem 9-30 Financial Break-Even** The Cornchopper Company is considering the purchase of a new harvester. - The new harvester is not expected to affect revenues, but pretax operating expenses will be reduced by $12,200 per year for 10 years. - The old harvester is now 5 years old, with 10 years of its scheduled life remaining. It was originally purchased for $54,000 and has been depreciated by the straight-line method. - The old harvester can be sold for $20,200 today. - The new harvester will be depreciated by the straight-line method over its 10-year life. - The corporate tax rate is 23 percent. - The firm’s required rate of return is 15 percent. - The initial investment, the proceeds from selling the old harvester, and any resulting tax effects occur immediately. - All other cash flows occur at year-end. - The market value of each harvester at the end of its economic life is zero. Determine the break-even purchase price in terms of present value of the harvester. This break-even purchase price is the price at which the project’s NPV is zero. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) **Purchase price:** [Input box]
**Problem 9-30 Financial Break-Even** The Cornchopper Company is considering the purchase of a new harvester. - The new harvester is not expected to affect revenues, but pretax operating expenses will be reduced by $12,200 per year for 10 years. - The old harvester is now 5 years old, with 10 years of its scheduled life remaining. It was originally purchased for $54,000 and has been depreciated by the straight-line method. - The old harvester can be sold for $20,200 today. - The new harvester will be depreciated by the straight-line method over its 10-year life. - The corporate tax rate is 23 percent. - The firm’s required rate of return is 15 percent. - The initial investment, the proceeds from selling the old harvester, and any resulting tax effects occur immediately. - All other cash flows occur at year-end. - The market value of each harvester at the end of its economic life is zero. Determine the break-even purchase price in terms of present value of the harvester. This break-even purchase price is the price at which the project’s NPV is zero. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) **Purchase price:** [Input box]
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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![**Problem 9-30 Financial Break-Even**
The Cornchopper Company is considering the purchase of a new harvester.
- The new harvester is not expected to affect revenues, but pretax operating expenses will be reduced by $12,200 per year for 10 years.
- The old harvester is now 5 years old, with 10 years of its scheduled life remaining. It was originally purchased for $54,000 and has been depreciated by the straight-line method.
- The old harvester can be sold for $20,200 today.
- The new harvester will be depreciated by the straight-line method over its 10-year life.
- The corporate tax rate is 23 percent.
- The firm’s required rate of return is 15 percent.
- The initial investment, the proceeds from selling the old harvester, and any resulting tax effects occur immediately.
- All other cash flows occur at year-end.
- The market value of each harvester at the end of its economic life is zero.
Determine the break-even purchase price in terms of present value of the harvester. This break-even purchase price is the price at which the project’s NPV is zero. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
**Purchase price:** [Input box]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F81f3c13b-c916-4610-ab84-ceb3c5d340e8%2Fafee0811-4604-4c25-8507-d49d951e58ab%2Fza2hw5.jpeg&w=3840&q=75)
Transcribed Image Text:**Problem 9-30 Financial Break-Even**
The Cornchopper Company is considering the purchase of a new harvester.
- The new harvester is not expected to affect revenues, but pretax operating expenses will be reduced by $12,200 per year for 10 years.
- The old harvester is now 5 years old, with 10 years of its scheduled life remaining. It was originally purchased for $54,000 and has been depreciated by the straight-line method.
- The old harvester can be sold for $20,200 today.
- The new harvester will be depreciated by the straight-line method over its 10-year life.
- The corporate tax rate is 23 percent.
- The firm’s required rate of return is 15 percent.
- The initial investment, the proceeds from selling the old harvester, and any resulting tax effects occur immediately.
- All other cash flows occur at year-end.
- The market value of each harvester at the end of its economic life is zero.
Determine the break-even purchase price in terms of present value of the harvester. This break-even purchase price is the price at which the project’s NPV is zero. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
**Purchase price:** [Input box]
Expert Solution
Step 1
Net Present Value(NPV) is excess of present value(PV) of cash inflows over initial outlay of proposal and present value(PV) of cash outflows. It helps to take effective decision for future amount.
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