Johnny Dear Inc. is examining the possibility of purchasing harvesting machinery for $147,500 that is expected to be sold at the end of 10 years for $500. The machinery will generate benefits of $24,550 per year and will have maintenance costs of $3,203 per year. Johnny Dear Inc. will use an interest rate of 7% and a straight-line depreciation method. Due to the next tax code the company has a flat tax rate of 21%. Calculate the project's after-tax benefit cost ratio. Remember to use two decimal points

Johnny Dear Inc. is examining the possibility of purchasing harvesting machinery for $147,500 that is expected to be sold at the end of 10 years for $500. The machinery will generate benefits of $24,550 per year and will have maintenance costs of $3,203 per year. Johnny Dear Inc. will use an interest rate of 7% and a straight-line depreciation method. Due to the next tax code the company has a flat tax rate of 21%. Calculate the project's after-tax benefit cost ratio. Remember to use two decimal points

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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Mid-America Shipping is considering purchasing a new barge for use on its Ohio River routes. The new barge will cost S13.2 million and is expected to generate an income of $7.5 million the first year (growing $1M each year), with additional expenses of $2.6 million the first year (growing $400,000 per year). If Mid-America uses MACRS, is in the 26% tax bracket, and has a MARR of 12%, what is the present worth of the first 4 years of after-tax cash flows from this barge? Would you recommend that Mid-America purchase this barge? Does your answer change at 5 or 6 or 7 or ...years?
Raiders Restaurant is considering the purchase of a $10,000,000 flat-top grill. The grill has an economic life of 6 years and will be fully depreciated using the straight-line method. The grill is expected to produce 600,000 tacos per year for the next 6 years, each taco costing $4 to make and priced at $11. Assume the discount rate is 12% and the tax rate is 21%. The restaurant expects the market value of the grill to be $0, 6 years from now. Calculate the book value of the grill at the end of year 3. (Round to 2 decimals)
Ilana Industries Inc. needs a new lathe. It can buy a new high-speed lathe for $1 million. The lathe will cost $35,000 per year to run, but it will save the firm $125,000 in labor costs and will be useful for 10 years. Suppose that for tax purposes, the lathe is entitled to 100% bonus depreciation. At the end of the 10 years, the lathe can be sold for $100,000. The discount rate is 8%, and the corporate tax rate is 21%. What is the NPV of buying the new lathe? (A negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to 2 decimal places.)
Your firm needs a computerized machine tool lathe which costs $50,000 and requires $12,000 in maintenance for each year of its 3-year life. After three years, this machine will be replaced. The machine falls into the MACRS 3-year class life category, and neither bonus depreciation nor Section 179 expensing can be used. Assume a tax rate of 21 percent and a discount rate of 12 percent. nts Calculate the depreciation tax shield for this project in year 3. (Round your answer to 2 decimal places.) Print Depreciation tax shield eferences 00
Daily Enterprises is purchasing a $10.2 million machine. It will cost $51,000 to transport and install the machine. The machine has a depreciable life of five years and will have no salvage value. The machine will generate incremental revenues of $3.9 million per year along with incremental costs of $1.5 million per year. If Daily's marginal tax rate is 21%, what are the incremental earnings (net income) associated with the new machine? The annual incremental earnings are $ (Round to the nearest dollar.)
Raiders Restaurant is considering the purchase of a $10,000,000 flat - top grill. The grill has an economic life of 6 years and will be fully depreciated using the straight-line method. The grill is expected to produce 600,000 tacos per year for the next 6 years, each taco costing $4 to make and priced at $11. Assume the discount rate is 12% and the tax rate is 21 %. The restaurant expects the market value of the grill to be $0, 6 years from now. Calculate the net present value for the project.
Daily Enterprises is purchasing a $10.4 million machine. It will cost $46,000 to transport and install the machine. The machine has a depreciable life of five years using straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.4 million per year along with incremental costs of $1.5 million per year. Daily's marginal tax rate is 21%. You are forecasting incremental free cash flows for Daily Enterprises. What are the incremental free cash flows associated with the new machine? The free cash flow for year 0 will be $10,446,000. (Round to the nearest dollar.) The free cash flow for years 1-5 will be $ (Round to the nearest dollar.)
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A corporation is considering a proposal for the purchase of a machine that will save $130,000 per year before taxes. The cost of operating the machine. including maintenance, is $20,000 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 40%. If the firm wants 12% IRR after taxes, how much can it afford to pay for this machine?

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