Financial Accounting Question Jean Peck manufacturing wants to replace a 6-year-old machine with amore efficient model. The old machine originally cost $80,000 and has acurrent book value of $18,000. The company can sell the old machinefor $22,000. The tax rate is 28%. What is the effect of the sale of the oldmachine on the initial outlay for the new machine?

Step 1: Definition of After-Tax Salvage ValueThe After-Tax Salvage Value is the net amount a company…

Answered: Jean Peck manufacturing wants to…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 10P

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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?
Shonda & Shonda is a company that does land surveys and engineering consulting. They have an opportunity to purchase new computer equipment that will allow them to render their drawings and surveys much more quickly. The new equipment will cost them an additional $1.200 per month, but they will be able to increase their sales by 10% per year. Their current annual cost and break-even figures are as follows: A. What will be the impact on the break-even point if Shonda & Shonda purchases the new computer? B. What will be the impact on net operating income if Shonda & Shonda purchases the new computer? C. What would be your recommendation to Shonda & Shonda regarding this purchase?
Quorum Corp. wants to replace a 5-year-old machine with a new machine that is more efficient. The old machine cost $20,000 when new and has a current book value of $8,000. Quorum can sell the old machine for $5,000. The company has a marginal tax rate of 40%. What will be the cash flow impact from the sale of the old machine on the initial outlay for a new machine? a) $3,800 b) $5,000 c) $6,200 d) $8,000
John's cafe is considering the purchase of a waffle maker that cost $10,000. The waffle maker has an economic life of 5 years and will be fully depreciated by the straight-line method. The machine will produce 1,600 waffles per year, with each costing $2.50 to make and priced at $4.75. The discount rate is 10 percent and the tax rate is 21 percent. What is the NPV of the project?
You are considering the purchase of one of two machines used in your manufacturing plant. Machine A has a life of two years, costs $150 initially, and then requires $105 per year in maintenance costs. Machine B costs $220 initially, has a life of three years, and requires $170 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine. The discount rate is 13 percent and the tax rate is zero. Calculate the EAC. Note: Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. Machine A Machine B Which one should you choose? Machine B EAC Machine A
Your company is considering the replacing an old machine with a more efficient model. The new machine costs $39,500, will last for 7 years and save $12,900 per year in expenses. The discount rate is 18% and the tax rate is 26%. The machine will be depreciated on a straight line basis to zero. The old machine is fully depreciated and can be sold today for $2,700. A) what is the amount of initial investment required? B) what is the after-tax gain on the sale of the old machine? The old machine is fully depreciated. C) what is the amount of operating cash flow (OCF) per year? D) what is the NPV of the project?
You are considering the purchase of one of two machines used in your manufacturing plant. Machine A has a life of two years, costs $140 initially, and then requires $115 per year in maintenance costs. Machine B costs $210 initially, has a life of three years, and requires $160 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine. The discount rate is 12 percent and the tax rate is zero. Calculate the EAC. Note: Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. Machine A Machine B EAC
The plant manager of RecycleNow! Corp is considering a new pulverizer for one of its recycling sorting facilities. The new machine costs $35,755 making it eligible for the company’s 3-year payback rule. The new machine is expected to produce incremental after-tax profits of $13,150/year. A) What is the payback period? (Carry your answer to 1 decimal place.) B) Should RecycleNow! buy the new pulverizer?
Which one should you choose?
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You are considering the purchase of one of two machines used in your manufacturing plant. Machine A has a life of two years, costs $95 initially, and then $140 per year in maintenance costs. Machine B costs $165 initially, has a life of three years, and requires $115 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine. The discount rate is 12 percent and the tax rate is zero. Calculate the EAC. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.) Machine A Machine B EAC
You are considering the purchase of one of two machines used in your manufacturing plant. Machine A has a life of two years, costs $80 initially, and then $125 per year in maintenance costs. Machine B costs $150 initially, has a life of three years, and requires $100 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine.The discount rate is 12 percent and the tax rate is zero. Calculate the EAC. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)

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