Need help with this accounting question Mitata Company is considering the purchase of new manufacturingequipment that will cost $35,000 (including shipping & installation). Mitatacan take out a 4-year, $35,000 loan to pay for the equipment at an interestrate of 8.40%.The loan and purchase agreements will also contain the followingprovisions:The annual maintenance expense for the equipment is expected to be $350.The equipment has a 4-year depreciable life. The Modified Accelerated CostRecovery System's (MACRS) depreciation rates for a 3-year asset are33.33%, 44.45%, 14.81%, and 7.41% respectively.The corporate tax rate for Mitata is 35%.Note: Mitata Company is allowed to take a full-year depreciation tax-savingdeduction in the first year.What will be the annual loan payment?a. $63,461.12b. $106.62c. $10,661.47d. $12,692.22

Step 1: Introduction to the Depreciation DeductionIn production of goods and providing services,…

Answered: Mitata Company is considering the…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 14P

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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?
Grummet Company is acquiring a new wood lathe with a cash purchase price of $80,000. The Wood Master Industries (the manufacturer) has agreed to accept $23,500 at the end of each of the next 4 years. Based on this deal, how much interest will Grummet pay over the life of the loan? A. $94,000 B. $80,000 C. $23,500 D. $14,000
Consider the case of Shoe Building Inc. (SBI): Shoe Building Inc. (SBI) is considering the purchase of new manufacturing equipment that will cost $35,000 (including shipping and installation). SBI can take out a four-year, $35,000 loan to pay for the equipment at an interest rate of 8.40%. The loan and purchase agreements will also contain the following provisions: •The annual maintenance expense for the equipment is expected to be $350.•The equipment has a four-year depreciable life. The Modified Accelerated Cost Recovery System's (MACRS) depreciation rates for a three-year asset are 33.33%, 44.45%, 14.81%, and 7.41%, respectively.•The corporate tax rate for SBI is 40%.Note: Shoe Building Inc. (SBI) is allowed to take a full-year depreciation tax-saving deduction in the first year. Based on the preceding information, complete the following tables: ValueAnnual tax savings from maintenance will be:$140 Tax savings from depreciation Year 1 Year 2 Year 3 Year 4 $4,666…
Consider the case of Shoe Building Inc. (SBI): Shoe Building Inc. (SBI) is considering the purchase of new manufacturing equipment that will cost $35,000 (including shipping and installation). SBI can take out a four-year, $35,000 loan to pay for the equipment at an interest rate of 8.40%. The loan and purchase agreements will also contain the following provisions: • The annual maintenance expense for the equipment is expected to be $350. • The equipment has a four-year depreciable life. The Modified Accelerated Cost Recovery System’s (MACRS) depreciation rates for a three-year asset are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. • The corporate tax rate for SBI is 40%. Note: Shoe Building Inc. (SBI) is allowed to take a full-year depreciation tax-saving deduction in the first year. Based on the preceding information, complete the following tables: Value Annual tax savings from maintenance will be: $140 Year 1 Year 2 Year 3…
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Pompeo Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $95,000. The freight and installation costs for the equipment are $4,500. If purchased, annual repairs and maintenance are estimated to be $3,600 per year over the 4-year useful life of the equipment. Alternatively, Pompeo can lease the equipment from a domestic supplier for $29,200 per year for 4 years, with no additional costs. Question Content Area Prepare a differential analysis dated December 11 to determine whether Pompeo should Lease Equipment (Alternative 1) or Buy Equipment (Alternative 2). Hint: This is a lease-or-buy decision, which must be analyzed from the perspective of the equipment user, as opposed to the equipment owner. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential AnalysisLease Equipment (Alt. 1) or Buy Equipment (Alt. 2)December 11 Lease…
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A firm can purchase a centrifugal separator (5-year MACRS property) for$17,000.The estimated salvage value is$3,000after a useful life of six years. Operating and maintenance (O&M) costs for the first year are expected to be$1,700.These O&M costs are projected to increase by$1,500per year each year thereafter. The income tax rate is23%and the MARR is12% after taxes. What must the uniform annual benefits be for the purchase of the centrifugal separator to be economical on an after-tax basis?
Looner Industries is currently analyzing the purchase of a new machine that costs $158,000 and requires $19,900 in installation costs. Purchase of this machine is expected to result in an increase in net working capital of $29,600 to support the expanded level of operations. The firm plans to depreciate the machine under MACRS using a five-year recovery period (see the table attached for the applicable depreciation percentages) and expects to sell the machine to net $10,300 before taxes at the end of its usable life. The firm is subject to a 21% tax rate c. Assuming a five-year usable life, calculate the terminal cash flow if the machine were sold to net (1) $8,895 or (2) $169,900 (before taxes) at the end of five years. d. Discuss the effect of sale price on terminal cash flow using your findings in part c.
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