Get Answer Meister Cheese Company is considering an investment in new equipment thatcosts $7,440,000. It will be used for seven years and qualifies as three-year MACRSproperty. What will the book value of this equipment be at the end of seven years?Kendall Corners Inc. recently reported net income of $3.1 million and depreciationof $527,000. What was its net cash flow? Assume it had no amortization expense.

To solve these problems, we need to calculate the depreciation expense for the equipment using the…

Answered: Meister Cheese Company is considering…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 18E

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The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
Gallant Sports s considering the purchase of a new rock-climbing facility. The company estimates that the construction will require an initial outlay of $350,000. Other cash flows are estimated as follows: Assuming the company limits its analysis to four years due to economic uncertainties, determine the net present value of the rock-climbing facility. Should the company develop the facility if the required rate of return is 6%?
Martin Corporation is considering an investment in new equipment costing $155,000. The equipment will be depreciated on a straight-line basis over a five-year life and is expected to generate net cash inflows of $45,000 the first year, $65,000 the second year, and $90,000 every year thereafter until the fifth year. What is the payback period for this investment? The equipment has no residual value OA 3.22 years OB. 1.58 years OC. 4.22 years OD. 2.29 years CKIE
Baird Bros. Construction is considering the purchase of a machine at a cost of $202,000. The machine is expected to generate cash flows of $37,000 per year for 10 years and can be sold at the end of 10 years for $27,000. Interest is at 11%. Assume the machine purchase would be paid for on the first day of year one, but that all other cash flows occur at the end of the year. Ignore income tax considerations. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required:a. What is the net present value of the cash flows?b. Determine whether Baird should purchase the machine.
Happiny Corporation is considering the purchase of new equipment costing P300,000. The projected annual after-tax net income from the equipment is P12,000, after deducting P100,000 for depreciation. The revenue is to be received at the end of each year. The machine has a useful life of 3 years and no salvage value. Butler requires a 12% return on its investments. What is the net present value of the machine? Group of answer choices (P36,000). P(31,000). P36,000. P31,000. P300,000.
Sussman industries purchased a drilling machine for $50,000 and paid cash. Sussman expects to use the machine for ten years after which it will have no value. It will be depreciated straight-line over the ten years. Assume a marginal tax rate of 40%. What are the cash flows associated with the machine?A. At the time of purchase?b. In each of the following ten years?
Enerlam Company purchased a machine with an estimated useful life of seven years. The machine will generate cash inflows of P9,000 each year over the next seven years. If the machine has no salvage value at the end of seven years, and assuming the company's discount rate is 10%, what is the purchase price of the machine if the net present value of the investment is P17,000?a. P43,812b. P26,812c. P17,000d. P22,195
NUBD Co. is planning to purchase a new machine which it will depreciate, for book purposes, on a straight-line basis over a 10 year period with no salvage value and a full year’s depreciation taken in the year of acquisition. The new machine is expected to produce cash flows from operations, net of income taxes, of P66,000 a year in each of the next ten years. The accounting rate of return on the initial investment is expected to be 12%. How much will the new machine cost?
Merigold company is considering investing in new equipment that will cost $1,417,000 with a 10-year useful life. The new equipment is expected to produce annual net income at $63,700 over its useful life. Depreciation expense, using the straight-line rate is $141,700 per year. Compute the cash pay back period. (Round answer to one decimal place, e.g. 15.2.)
Rooney, Incorporated is considering the purchase of a new machine costing $700,000. The machine's useful life is expected to be 8 years with no salvage value. The straight-line depreciation method will be used. The net increase in annual after-tax cash flow is expected to be $156,000. Rooney estimates its cost of capital to be 12%. (The present value of a $1 annuity for 8 years at 12% is 4.968, and the present value of $1 to be received in 8 years is 0.404.) The net present value of the investment in the machine under consideration is: Multiple Choice $156,000. $75,008. $87,500. $126.800.
Armor Investment Company is considering the acquisition of a heavily depreciated building on 10 acres of land. It expects to rent the building as a storage facility and expects to collect cash flows equal to $102,200 next year. However, because depreciation is expected to increase, Armor expects cash flows to decline at a rate of 4 percent per year indefinitely. Armor expects to earn an IRR on investment return (r) at 13 percent. Required: a. What is the value of this property? b. Assume that after five years the building could be demolished and the land could be redeveloped with a strip retail improvement. The latter would produce NOI of $204,400 per year, grow at 3 percent per year, and cost $1 million to build. Investors currently earn a 10 percent IRR on such investments. What is the profit to be earned?
The Cliney Co. is considering investing $40,000 in a piece of new equipment. If the project is accepted, it would generate cash revenues of $15,000 per year and cash costs of $5,000 per year for the next 10 years. The equipment is expected to be sold for $8,000 at the end of year 10. Assume Cliney uses straight-line depreciation to compute depreciation expense for all purposes. What is the net cash inflow in year 10? Assume Cliney has a 35% tax rate. a. $6,800 b. $8,000 c. $10,000 d. $15,000 e. None of the above

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