Listen You want to buy a new equipment to replace an existing one. The new equipment will be depreciated down to zero using straight-line depreciation over its 10-year life. The project is a 10-year project. The market value of the new equipment at the end of year 10 is expected to be 0. The new equipment will replace an existing old equipment that has 10 years left of depreciation at a $3,000 a year. The estimated before tax proceeds from selling this existing equipment is $15,000 today. The market value in 10 years for this old equipment would be 0. The new equipment will generate annual cost savings of $12,000 before taxes. The tax rate is 20% and the discounting rate is 10%. What is the maximum price you are willing to pay today for the new equipment? For your answer, do not enter the dollar sign ($), DO NOT use commas, and you can round to zato decimals (the nearest dollar). Your Answer: Answer

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
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You want to buy a new equipment to replace an existing one. The new equipment will be depreciated down to zero
using straight-line depreciation over its 10-year life. The project is a 10-year project. The market value of the new
equipment at the end of year 10 is expected to be 0. The new equipment will replace an existing old equipment that
has 10 years left of depreciation at a $3,000 a year. The estimated before tax proceeds from selling this existing
equipment is $15,000 today. The market value in 10 years for this old equipment would be 0. The new equipment
will generate annual cost savings of $12,000 before taxes. The tax rate is 20% and the discounting rate is 10%.
What is the maximum price you are willing to pay today for the new equipment?
For your answer, do not enter the dollar sign ($), DO NOT use commas, and you can round to zato decimals (the
nearest dollar).
Your Answer:
Answer
Transcribed Image Text:Listen You want to buy a new equipment to replace an existing one. The new equipment will be depreciated down to zero using straight-line depreciation over its 10-year life. The project is a 10-year project. The market value of the new equipment at the end of year 10 is expected to be 0. The new equipment will replace an existing old equipment that has 10 years left of depreciation at a $3,000 a year. The estimated before tax proceeds from selling this existing equipment is $15,000 today. The market value in 10 years for this old equipment would be 0. The new equipment will generate annual cost savings of $12,000 before taxes. The tax rate is 20% and the discounting rate is 10%. What is the maximum price you are willing to pay today for the new equipment? For your answer, do not enter the dollar sign ($), DO NOT use commas, and you can round to zato decimals (the nearest dollar). Your Answer: Answer
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