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The
Black & Decker (B&D) manufactures cordless hedge trimmers that it sells to Wal-Mart. In order to produce that, B&D had to purchase a robotic machine that it can be used to produce 1 million hedge trimmers.
Do you think B&D should account for depreciation on its manufacturing equipment the same way Wal-Mart accounts for depreciation on its registers at the checkout counters?
If not, how should B&D account for its depreciation?
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- makabhai this problem, given the same data has several different answers for the NPV. Please show in excel with formulas that correct answer. TexMex Food Company is considering a new salsa whose data are shown below. The equipment to be used would be depreciated by the straight-line method over its 3-year life and would have a zero salvage value, and no new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other TexMex products and would reduce their pre-tax annual cash flows. What is the project's NPV? WACC 10.0% Pre-tax cash flow reduction for other products (cannibalization) -$5,000 Investment cost (depreciable basis) $80,000 Straight-line deprec. rate 33.333% Sales revenues, each year for 3 years $67,500 Annual operating costs (excl. deprec.) -$25,000 Tax rate 35.0%Please helpThe term depreciation refers to how the value of an asset (such as a car) decreases over time. There are several different approaches for calculating depreciation. Part A: In the straight-line method of calculating depreciation, the value of the item is reduced by the same amount each year. Suppose a company purchases a car for $24000. Using straight-line depreciation, the value of the car may be reduced by $2500 each year. Determine a formula for S(t), the value of the car t years after purchase. Answer: Part B: After five years, the value of the car, using the straight-line method, will be $ Part C: After twelve years, the value of the car, using the straight-line method, will be Part D: In the declining balance method of depreciation, the value of the item is reduced by the same percentage each year. Suppose the $24000 car is depreciated at a rate of 14% each year. Determine a formula for D(t), the value of the car t years after purchase. Answer: Part E: After five years, the value…
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- Brooks Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure, but its maintenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimates were made of the cash flows. The company's cost of capital is 5%. Option A Option B Initial cost $193.000 $285,000 Annual cash inflows $72,900 $82.500 Annual cash outflows $28,700 $26,700 Cost to rebuild (end of year 4) $50.700 S0 Salvage value SO $7.700 Estimated useful life 7 years 7 years Click here to view PV table. (a) Compute the (1) net present value, (2) profitability index and (3) Internal rate of return for each option. (HintE To solve for internal rate of return, experiment with alternative discount rates to arrive at a net…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.XYZ Ltd. is a manufacturing company that produces specialized machinery. The company has been in business for the last 10 years and has always used the straight-line method of depreciation to calculate the depreciation expense for its machinery. However, the company's financial controller has recently proposed that they switch to the double- declining balance method instead. The financial controller argues that this method would result in a more accurate depreciation expense calculation and better reflect the actual usage of the machinery over time. Questions: 1. What is the straight-line method of depreciation? 2. What is the double-declining balance method of depreciation? 3. What are the advantages and disadvantages of using the straight-line method? 4. What are the advantages and disadvantages of using the double-declining balance method? 5. Should XYZ Ltd. switch to the double-declining balance method of depreciation? Why or why not?
- 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…At times firms will need to decide if they want to continue to use their current equipment or replace the equipment with newer equipment. The company will need to do replacement analysis to determine which option is the best financial decision for the company. Price Co. is considering replacing an existing piece of equipment. The project involves the following: • The new equipment will have a cost of $9,000,000, and it is eligible for 100% bonus depreciation so it will be fully depreciated at t = 0. • The old machine was purchased before the new tax law, so it is being depreciated on a straight-line basis. It has a book value of $200,000 (at year 0) and four more years of depreciation left ($50,000 per year). • The new equipment will have a salvage value of $0 at the end of the project's life (year 6). The old machine has a current salvage value (at year 0) of $300,000. • Replacing the old machine will require an investment in net operating working capital (NOWC) of…Carla Vista Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for work on large homes and commercial properties. Last year, Carla Vista Roofing spent $77,400 refurbishing the lift. It has just determined that another $45,500 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $194,000. The company estimates that both lifts would have useful lives of 5 years. The new lift is more efficient and thus would reduce operating expenses from $110,000 to $84,200 each year. Carla Vista Roofing could also rent out the new lift for about $11,500 per year. The old lift is not suitable for rental. The old lift.could currently be sold for $28,500 if the new lift is purchased. The new lift and old lift are estimated to have salvage values of zero if used for another 5 years. Prepare an incremental analysis showing whether the company should repair or replace the equipment. (Enter negative amounts using…
