llana Industries, Inc., needs a new lathe. It can buy a new high-speed lathe for $0.97 million. The lathe will cost $31,300 to run, will savethe firm $127,700 in labour costs, and will be useful for 10 years. Suppose that for tax purposes, the lathe will be in an asset class with aCCA rate of 25%. llana has many other assets in this asset class. The lathe is expected to have a 10-year life with a salvage value of$91,000. The actual market value of the lathe at that time will also be $91,000. The discount rate is 15% and the corporate tax rate is35%.What is the NPV of buying the new lathe? (Round your answer to the nearest cent.)NPV $

NPV is method for determining the current value of the cash flows, which have been generated by the…

llana Industries, Inc., needs a new lathe. It can buy a new high-speed lathe for $0.97 million. The lathe will cost $31,300 to run, will save the firm $127,700 in labour costs, and will be useful for 10 years. Suppose that for tax purposes, the lathe will be in an asset class with a CCA rate of 25%. Ilana has many other assets in this asset class. The lathe is expected to have a 10-year life with a salvage value of $91,000. The actual market value of the lathe at that time will also be $91,000. The discount rate is 15% and the corporate tax rate is 35%. What is the NPV of buying the new lathe? (Round your answer to the nearest cent.) NPV $

llana Industries, Inc., needs a new lathe. It can buy a new high-speed lathe for $0.97 million. The lathe will cost $31,300 to run, will save the firm $127,700 in labour costs, and will be useful for 10 years. Suppose that for tax purposes, the lathe will be in an asset class with a CCA rate of 25%. Ilana has many other assets in this asset class. The lathe is expected to have a 10-year life with a salvage value of $91,000. The actual market value of the lathe at that time will also be $91,000. The discount rate is 15% and the corporate tax rate is 35%. What is the NPV of buying the new lathe? (Round your answer to the nearest cent.) NPV $

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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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
Your company is considering a new project that will require $825,000 of new equipment at the start of the project. The equipment will have a depreciable life of 9 years and will be depreciated to a book value of $141,000 using straight-line depreciation. The cost of capital is 12 percent, and the firm’s tax rate is 35 percent. Estimate the present value of the tax benefits from depreciation. (Round your answer to 2 decimal places.)
Consider the following case of Happy Turtle Transportation Company: Suppose Happy Turtle Transportation Company is considering a project that will require $400,000 in assets. • The company is small, so it is exempt from the interest deduction limitation under the new tax law. • The project is expected to produce earnings before interest and taxes (EBIT) of $40,000. Common equity outstanding will be 20,000 shares. • The company incurs a tax rate of 25%. If the project is financed using 100 % equity capital, then Happy Turtle Transportation Company's return on equity (ROE) on the project will be In addition, Happy Turtle's earnings per share (EPS) will be Alternatively, Happy Turtle Transportation Company's CFO is also considering financing the project with 50% debt and 50% equity capital. The interest rate on the company's debt will be 12%. Because the company will finance only 50% of the project with equity, it will have only 10,000 shares outstanding. Happy Turtle Transportation…
Your firm needs a computerized tool lathe which cost $49000 and requires $119000 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. Assume a tax rate of 34 percent and a discount rate of 13 percent. Calculate the depreciation tax shield for this project. Work in excel
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
Proven Specialist will spend $850,000 on a piece of equipment that will manufacture fine wire for the electronics industries. The shipping and installation charges will be $220,000 and net working capital will increase to $28,000. The equipment will replace an existing machine that has a salvage value of $85,000 and a book value of $122,000. If Proven Specialist has a current marginal tax rate of 32 percent, what is the net investment?
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-.
(Ignore income taxes in this problem.) Your Company has some equipment that can either be repaired right now for $50,000 or sold for $13,000 scrap value. As an alternative, Your Company could buy new equipment for $150,000. Both pieces of equipment would last 8 years. The annual operating expenses of the new equipment would be $8,500 less than the operating costs of the old machine. In addition, the new machine would be able to produce 100 more units that can be sold for a contribution margin of $65 per unit. The new equipment is expected to have a $10,000 salvage value in 8 years. Your Company discount rate is 8%. What is the net present value of the decision to buy the new equipment instead of repairing the old equipment? a $4,605 b $3,225 c $1,605 d ($ 795)
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. $
Acefacto Inc., has asked for you to calculate the after-tax salvage value of an asset it plans on using in a construction project. The project will be depreciated straight line to a value of$670,000at the end of the project's and assets ten year life. Ace's marginal tax rate is32%. The firm will have to pay$8,047,675to buy the asset. You have estimated that they could sell the asset for$787,309to a Brazilian firm at the end of the project. Answer in dollars and cents.
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 ?.

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