Ilana Industries Incorporated needs a new lathe. It can buy a new high-speed lathe for $2.0 million. Thelathe will cost $31,000 per year to run, but it will save the firm $184,000 in labor costs and will be useful for10 years. Suppose that, for tax purposes, the lathe is entitled to 100% bonus depreciation. At the end ofthe 10 years, the lathe can be sold for $470,000. The discount rate is 10%, and the corporate tax rate is21%. What is the NPV of buying the new lathe?Note: A negative amount should be indicated by a minus sign. Enter your answer in dollars not inmillions. Do not round intermediate calculations. Round your answer to 2 decimal places.NPV

NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…

Answered: Ilana Industries Incorporated needs a…

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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The Jackson Company has the opportunity to invest in one of two mutually exclusive machines that will produce a product it will need for the foreseeable future. Machine A costs $14 million but realizes after-tax inflows of $6 million per year for 4 years. After 4 years, the machine must be replaced. Machine B costs $17 million and realizes after-tax inflows of $4.5 million per year for 8 years, after which it must be replaced. Assume that machine prices are not expected to rise because inflation will be offset by cheaper components used in the machines. If the cost of capital is 9 percent, which machine should the company use? a. Machine A b. Machine B c. Both machines A and B d. Neither machine A or B
9
Spectacular Flooring (SF) is a wood flooring wholesale company. SF is considering building a new inventory warehouse for $500,000. The warehouse would allow SF to increase their pre-tax cash flows by $100,000 each year. The company would plan to use the warehouse for 10 years before selling it for $200,000. The company uses straight-line depreciation. SF’s tax rate is 20%, and the required rate of return is 10%. What is the Net Present Value (NPV) of the proposed investment? Select one: a. $90,119 b. $77,108 c. ($55,591) d. $105,541 e. $19,517
Daily Enterprises is purchasing a $14,000,000 machine. The machine will depreciated using straight-line depreciation over its 10 year life and will have no salvage value. The machine will generate revenues of $8,000,000 per year along with costs of $3,000,000 per year. If Daily's marginal tax rate is 28%, what will be the cash flow in each of years one to 10 (the cash flow will be the same each year)? Enter your answer below rounded to the nearest whole number. Number
Builtrite is considering purchasing a new machine that would cost $60,000 and the machine would be depreciated (straight line) down to $0 over its five year life. At the end of five years it is believed that the machine could be sold for $15,000. The machine would increase EBDT by $42,000 annually. Builtrite’s marginal tax rate is 34%. What is the TCF associated with the purchase of this machine? $5,100 $7,500 $0 $9,900
A startup is considering buying a $295,000 piece of equipment. If it purchases the equipment, it will take a loan for the entire amount; the interest on the loan is 3%, and the loan will be repaid in 5 equal end of year payments. The startup estimates that the equipment would generate an additional $170,000 of revenue each year. At the end of 5 years, the equipment would have a salvage value of $21,000. The tax rate is 23%. Assuming a planning horizon of 5 years, that the equipment is depreciated using MACRS (3-year property class), and that the medical practice uses an after-tax MARR of 6%, compute the PW and determine whether the startup should invest in the equipment. Click here to access the TVM Factor Table calculator. Click here to access the MACRS-GDS Property Classes. Click here to access the MACRS-GDS percentages page. Click here to access the MACRS-GDS percentages for 27.5-year residential rental property. 2$ Carry all interim calculations to 5 decimal places and then round…
The Lesseig Company has an opportunity to invest in one of two mutually exclusive machines that will produce a product the company will need for the next 8 years. Machine A has an after-tax cost of $9.9 million but will provide after-tax inflows of $4.2 million per year for 4 years. If Machine A were replaced, its after-tax cost would be $11.8 million due to inflation and its after-tax cash inflows would increase to $4.5 million due to production efficiencies, Machine B has an after-tax cost of $13.1 million and will provide after-tax inflows of $3.6 million per year for 8 years. If the WACC is 7%, which machine should be acquired? Explain. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answers to two decimal places. Machine -Select- is the better project and will increase the company's value by $ millions, rather than the s millions created by Machine -Select-.
your company is considering a new project that will require $10,000 of new equipment at the start of the project. T he equipment will have a depreciable life of five years and will be depreciated to a book value of $3000 using straight line depreciation. the cost of capital is 9 percent and the firm tax rate is 21 percent. estimate the present value of the tax benifits frm depreciation.
Gluon Incorporated is considering the purchase of a new high pressure glueball. It can purchase the glueball for $150,000 and sell its old low-pressure glueball, which is fully depreciated, for $26,000 The new equipment has a 10-year useful life and will save $34,000 a year in expenses before tax. The opportunity cost of capital is 11%, and the firm's tax rate is 21%. What is the equivalent annual saving from the purchase if Gluon can depreciate 100% of the investment immediately. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Answer is complete but not entirely correct. Equivalent annual savings $ 16,934.51
Karsted Air Services is now in the final year of a project. The equipment originally cost $23 million, of which 100% has been depreciated. Karsted can sell the used equipment today for $6 million, and its tax rate is 20%. What is the equipment's after-tax salvage value? Write out your answer completely. For example, 13 million should be entered as 13,000,000. Round your answer to the nearest dollar. $
A corporation is considering purchasing a machine that will save $150,000 per year before taxes. The cost of operating the machine (including maintenance) is $30,000 per year. The machine will be needed for five years, after which it will have a zero salvage value. MACRS depreciation will be used, assuming a three-year class life. The marginal income tax rate is 25%. If the firm wants 15% return on investment after taxes, how much can it afford to pay for this machine? If the firm wants 15% return on investment after taxes, it can afford to pay ?.
A new machine costing $150,000 is expected to save the McKaig Brick Company $11,000 per year for 5 years before depreciation and taxes. The machine will be depreciated on a straight-line basis for a 5-year period to an estimated salvage value of $0. The firm’s marginal tax rate is 40 percent. What are the annual net cash flows associated with the purchase of this machine? Round your answer to the nearest dollar. $ Compute the net investment (NINV) for this project. Round your answer to the nearest dollar. $

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