Mayco, Ine.would like ta set up anew plant (expor ently, Mayco ha an option to buy anexisting buildin $24, 000. Necessary equipmernt for the plant mill cest of ing inttallation.caits. The equipment falls into a MACR he builoling falls into a MACRS 39-years class. The also initial investment of $12,000 in working capital investment will be require an he initial e fime of the purchase of the building and equipmer tis estimated time, the building is expected to have a mas 15,000 ano life is four years. At the economic hoot of $ 21 814 Jebe xe as
Mayco, Ine.would like ta set up anew plant (expor ently, Mayco ha an option to buy anexisting buildin $24, 000. Necessary equipmernt for the plant mill cest of ing inttallation.caits. The equipment falls into a MACR he builoling falls into a MACRS 39-years class. The also initial investment of $12,000 in working capital investment will be require an he initial e fime of the purchase of the building and equipmer tis estimated time, the building is expected to have a mas 15,000 ano life is four years. At the economic hoot of $ 21 814 Jebe xe as
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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![class. The building falls inte a MACRS 39-years class The project
would also require an initiall investment of $12,000 in net working
that time, the buildling is expected to have a market value
including inttallation.casts. The equipment falls into a MACRS 5-year
Cost of $24,000. Necessaxy equipment for the plant mill cost $16.000,
Capital The initial woxking capital investment will be made at
Mayco, Ine would like to set up ane plant (expand)-
Lurrent ly, May.co has an option to buy an
existing building at a
the
Time of the purchase of the building andl equipmenthe
project's estimated
economic ife is four years. At the end ok
of $15,00o and a
book vakue of $21,816, where as the equipment
I5 expected to hare a market value of $4,000 and a book
value of $2,720. Annual sales will be $80.000 The
production department has estimated that Variable manufacturivg
costs will to tal 60%of sales and that fied overhead
costs, excluding depreciation, will be $10,000 ayeor [costs:
(0.60)80.000ř 10,000=58,000]. Depreciation expense will be
determined fox the year in accordancewith the mACRSXate
Mayco's marginal federal-plus-state tax rate is 40% its cost
of Capital is 12%, and foo capital buolgeting purposes, the
company's policy is to assume that operating cash flows occur.
at the end of each
The plant will begin opesations.
year.
immediately ater the investment is made, and the fixst
operating Cash flows will ocur exactly
The MACRS toble is given below.
one year later.
Proper ty classes
Piepet
Year
Three-Year
Five Year
Seven-Year
14.29%
33.33%
44-44%
1
20-00%.
32.00
24.49
3.
14-82%
19.20
17.49
7.41
11.52
12.49
11.52
8.93
5.76
8.93
8.१3
4-45
1) Compute the initial investment outlay. Also provide
explanation of working.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F38e75da0-1efb-410e-9705-1ae539e8176c%2F2dcdc1d5-5934-416a-abe5-12196d201aac%2Fup0t8o_processed.jpeg&w=3840&q=75)
Transcribed Image Text:class. The building falls inte a MACRS 39-years class The project
would also require an initiall investment of $12,000 in net working
that time, the buildling is expected to have a market value
including inttallation.casts. The equipment falls into a MACRS 5-year
Cost of $24,000. Necessaxy equipment for the plant mill cost $16.000,
Capital The initial woxking capital investment will be made at
Mayco, Ine would like to set up ane plant (expand)-
Lurrent ly, May.co has an option to buy an
existing building at a
the
Time of the purchase of the building andl equipmenthe
project's estimated
economic ife is four years. At the end ok
of $15,00o and a
book vakue of $21,816, where as the equipment
I5 expected to hare a market value of $4,000 and a book
value of $2,720. Annual sales will be $80.000 The
production department has estimated that Variable manufacturivg
costs will to tal 60%of sales and that fied overhead
costs, excluding depreciation, will be $10,000 ayeor [costs:
(0.60)80.000ř 10,000=58,000]. Depreciation expense will be
determined fox the year in accordancewith the mACRSXate
Mayco's marginal federal-plus-state tax rate is 40% its cost
of Capital is 12%, and foo capital buolgeting purposes, the
company's policy is to assume that operating cash flows occur.
at the end of each
The plant will begin opesations.
year.
immediately ater the investment is made, and the fixst
operating Cash flows will ocur exactly
The MACRS toble is given below.
one year later.
Proper ty classes
Piepet
Year
Three-Year
Five Year
Seven-Year
14.29%
33.33%
44-44%
1
20-00%.
32.00
24.49
3.
14-82%
19.20
17.49
7.41
11.52
12.49
11.52
8.93
5.76
8.93
8.१3
4-45
1) Compute the initial investment outlay. Also provide
explanation of working.
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