golden gate co. is evaluating the replacement of its existing manufacturing equipment with a new equipment. the old equipment is 5 years old and it was originally bought four $170,000,the current book value of it is $82,000, and its useful life 10 years . it can be sold for $13,000 at the end of it's life. the old equipment current market price is $115,000.golden gate co. will buy the new equipment for $330,000 which has a useful life of 6 years, depreciation is based on straight line method. management expect to sell it at the end of its life for $80,000. the revenues are expected to increase in the coming 5 years as follows respectively : $10,000, $25,000 , $25,000, $20,000 , $25,000 management expected to reduce productions cost by $60,000 each year of its operation it will also reduce work- in progress and inventory by $10,000 as soon as it placed in service . the company is taxed at an income tax rate of 35% and no tax credit assume cost of capital is 20% a- calculate the incremental CF from operation for (Y2) b- calculate the net CF (incremental) for (Y4) c- calculate the incremental CF from operation for (Y3)

golden gate co. is evaluating the replacement of its existing manufacturing equipment with a new equipment. the old equipment is 5 years old and it was originally bought four $170,000,the current book value of it is $82,000, and its useful life 10 years . it can be sold for $13,000 at the end of it's life. the old equipment current market price is $115,000.golden gate co. will buy the new equipment for $330,000 which has a useful life of 6 years, depreciation is based on straight line method. management expect to sell it at the end of its life for $80,000. the revenues are expected to increase in the coming 5 years as follows respectively : $10,000, $25,000 , $25,000, $20,000 , $25,000 management expected to reduce productions cost by $60,000 each year of its operation it will also reduce work- in progress and inventory by $10,000 as soon as it placed in service . the company is taxed at an income tax rate of 35% and no tax credit assume cost of capital is 20% a- calculate the incremental CF from operation for (Y2) b- calculate the net CF (incremental) for (Y4) c- calculate the incremental CF from operation for (Y3)

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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Benson Freight Company owns a truck that cost $47,000. Currently, the truck’s book value is $22,000, and its expected remaining useful life is five years. Benson has the opportunity to purchase for $30,300 a replacement truck that is extremely fuel efficient. Fuel cost for the old truck is expected to be $7,000 per year more than fuel cost for the new truck. The old truck is paid for but, in spite of being in good condition, can be sold for only $19,000.RequiredCalculate the total relevant costs. Should Benson replace the old truck with the new fuel-efficient model, or should it continue to use the old truck until it wears out?
Wells Printing is considering the purchase of a new printing press. The total installed cost of the press is $2.14 million. This outlay would be partially offset by the sale of an existing press. The old press has zero book value, cost $0.99 million 10 years ago, and can be sold currently for $1.24million before taxes. As a result of acquisition of the new press, sales in each of the next 5 years are expected to be $1.54 million higher than with the existing press, but product costs (excluding depreciation) will represent 52% of sales. The new press will not affect the firm's net working capital requirements. The new press will be depreciated under MACRS table attached, using a five-year recovery period. The firm is subject to a 40% tax rate. Wells Printing's cost of capital is 10.8%. (Note: Assume that the old and the new presses will each have a terminal value of $0 at the end of year 6.) d. Determine the net present value (NPV) and the internal rate of return (IRR)…
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