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- Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?Mining company can purchase a drilling machine for GH¢ 50,000. It also has the option to lease the drilling machine for GH¢12,200 a year for a 5-year period. The expected life of the machine is given as 5 years and expected to have a salvage value of GH¢5000 in 5 years’ time. The mining company intends to buy the drilling machine a fair market value at that time. If the mining company decides to buy the machine, it can acquire financing at 20%. The tax rate is 34%. Assume depreciation is on straight line basis and lease rentals are tax deductible. Would you advice the mining company to lease the asset? (Assume payment is made at the end of the year)Neptune company plans to purchase a new machine for the expansion project. The machine’s price is RM200,000 and it would cost another RM20,000 for installation and RM 15,000 for net working capital. The company is planning to finance the machine’s cost through bank loan with an interest rate of 8% per year. The machine has an expected life of 10 years and will be depreciated using simplified straight line depreciation method. However, the project is expected to be ended in year seven. The company expect that this new machine would increase the company’s annual income of RM40,000 per year. The maintenance cost for the machine will be RM10,000 per year. Additionally, the use of this new machine is expected to reduce the defect cost by RM2,000 per year. At the end of year 7, this machine is expected to be sold at RM30,000. Assuming the tax rate is 28% and the required rate of return is 10%, find whether ABC should proceed with this planning. Justify your answer.
- A set of Wire Bond machine costs $500,000. This amount includes freight and installation charges estimated at 10% of the original price. If the machine shall be depreciated over a period of 10 years with a salvage value of $5,000, what is the book value at the end of 7 years using SOYDM?An investment of P135 000.00 is being considered for a new lathe machine. Estimated economic life of the lathe is 12 years with a salvage value of P10 000.00. Projected annual income and expenses for the investment are P80 000.00 and P30 000.00, respectively. Using an MARR of 15% compounded annually and applying PW analysis, determine if the lathe should be purchased. (Ans. Purchase is justified, P137 900.00)A company is planning to acquire a machine costing K500,000. Effective life of the machine is 5 years. The company is considering two options. One is to acquire the machine through leasing and the other is by borrowing K500,000 from its bankers at 10% p.a. simple interest. The principal amount of the loan will be paid in 5 equal annual instalments. The machine will be sold at K50,000 at the end of 5th year. The following is further information: a) Principal, interest, lease rentals are payable on the last day of each year. b) The machine will be fully depreciated over its effective life. c) Tax rate is 30% and after tax cost of capital is 8%. REQUIRED: Compute the lease rentals payable which will make the firm indifferent to the loan.
- ASF wishes to acquire a 100,000 multifacet cutting machine the machine has a useful life of eight years, after which there is no expected salvage value. If ASF were to finance the cutting machine by signing an eight-year lease contract, annual lease payments of $16,000 would be required. The company could also finance the purchase of the machine with a 12 percent term loan having a payment schedule of the same general configuration as the lease payment schedule. The asset falls in the five-year property class for cost recovery (depreciation) purposes, and the company has a 35 percent tax rate. What is the present value of cash outflows for each of these alternatives, using the after-tax cost of debt as the discount rate? Which alternative is preferred?GRIP Industries is considering a new assembly line costing RM1,600,000. The instaliation will ncur a cost of RM350,000 and after-tax training cost of RM105,000. The assembly line will be fuly depreciated using the simplified straight-ine method over its 3- year depreciable life. Net working capital is expected to increase by RM420,000 at start and the full amount ill be recovered at the end of up year 3. First year sales are estimated to be RM1,800,00, and illincrease by RM200,000 each year throughout the 3-year period. Variable cost is 55% from sales, while fixed cost takes up RM225,000 per year. At terminal, the assembly line can be sold at RM700,000. GRIP is in the 35 percent tax bracket and has a required rate of returm of 12% A) Calculate the total initial outlay of the project. B) Determine the annual cash flow for the project from year 1 to year 3. C) Calculate the terminal cash flow at year 3. D) Calculate the net present value (NPV) and intermal required rate of return (IRR)…A machine was purchased with an amount of P375,000.00 and a modification cost of P100,000.00 after 12 years. It needs regular maintenance that cost P15,850.00 per year. A software renewal cost of P5,501.00 every two years. What is the total capitalized cost that needs to prepare for the acquisition of this asset in pesos given that the interest rate is 0.13 annually?
- Liverpool Limited urgently needs to upgrade its utility capacity. They require a new generator costing R1 200 000. Thegenerator can be leased or owned and the terms are as follows:Cost of leasing:The lease would require annual end-of-year payments of R320 200 over the four years.Service and insurance costs of R78 500 per annum will be borne by the lessor.The lessee will exercise its option to purchase the asset for R80 000 at the termination of the lease in four years.Cost of owning:The cost could will be settled in cash due to the companies excess cashflows after winning the Premier league in 2023.Liverpool Limited will pay maintenance cost of R6 000 per month. Depreciation charges are based on the straight-linemethod. At the end of the period the generator will be sold at its residual value ofR75 000.Additional Information:· the company is in the 28% tax bracket· the after-tax cost of the debt is 13% Calculate the after-tax cash outflows and the net present value of the cash outflows…Liverpool Limited urgently needs to upgrade its utility capacity. They require a new generator costing R1 200 000. Thegenerator can be leased or owned and the terms are as follows:Cost of leasing:The lease would require annual end-of-year payments of R320 200 over the four years.Service and insurance costs of R78 500 per annum will be borne by the lessor.The lessee will exercise its option to purchase the asset for R80 000 at the termination of the lease in four years.Cost of owning:The cost could will be settled in cash due to the companies excess cashflows after winning the Premier league in 2023.Liverpool Limited will pay maintenance cost of R6 000 per month. Depreciation charges are based on the straight-linemethod. At the end of the period the generator will be sold at its residual value ofR75 000.Additional Information:· the company is in the 28% tax bracket· the after-tax cost of the debt is 13%Required:3.1 Calculate the after-tax cash outflows and the net present value of the…Happiny Corporation is considering the purchase of new equipment costing P300,000. The projected annual after-tax net income from the equipment is P12,000, after deducting P100,000 for depreciation. The revenue is to be received at the end of each year. The machine has a useful life of 3 years and no salvage value. Butler requires a 12% return on its investments. What is the net present value of the machine? Group of answer choices (P36,000). P(31,000). P36,000. P31,000. P300,000.
