new plant (expand) Mayco , Inc Would Like to set up option to buy Currently o May co has an a cost of $24, 00 - Nece ssary eguipment for the plant will cast $ 16,000, including installation costs. The equipment falls into a MACRS 5- year class. The building falls into a MACRS 39- year class. The project would also require an initial investment of $12, 000 in net wor lking capi tal · The initial existing building at an working capital investment wi ll be made at the time of he purchase of the building and equipment The Projects estimated economic life is four years At the end of that time, the buiding is expected to have a market value of $ 15,00 and a book value of $ 24, 8 16 , whereas the equipment is expected to have a market value of $4,a00 and a book value of $ 2,720. Annual Sales will be $80,000. The production de partment has estimated that Variable manu factuning costs will total b0% Sales and that fined over-head costs , eneluding depreciation, will be $10,00 a year (0.60) 80,0 + Lo, c0 = 58, ov0 Depreciation expense will be determined for the year in accordance with the MACRS yate. Casts May co's marginal federal-plus- State tax vate is y0% ; its cost of capital is 12%; and for capital budgeting pur poses , the company's policy is to assume that operating cash flows occur at the end of each year. The plant will begin operation immediately after the invesiment is made, and the first operating cash flows will occur exactly one year Latex. The MACRS table is given below : Property Class Five -year 20.00 % Year Three - year seven-year 1. 33.33% 14-29 % 2. 44.44 32.00 24.49 3 12-82 19. 20 17.49 4 7.41 24. 52 12. 49 11.52 8.93 5.76 8. 13 7 8.93 4.45 Commute the operating cash flow over the proJects life. Also provide explanation of working
new plant (expand) Mayco , Inc Would Like to set up option to buy Currently o May co has an a cost of $24, 00 - Nece ssary eguipment for the plant will cast $ 16,000, including installation costs. The equipment falls into a MACRS 5- year class. The building falls into a MACRS 39- year class. The project would also require an initial investment of $12, 000 in net wor lking capi tal · The initial existing building at an working capital investment wi ll be made at the time of he purchase of the building and equipment The Projects estimated economic life is four years At the end of that time, the buiding is expected to have a market value of $ 15,00 and a book value of $ 24, 8 16 , whereas the equipment is expected to have a market value of $4,a00 and a book value of $ 2,720. Annual Sales will be $80,000. The production de partment has estimated that Variable manu factuning costs will total b0% Sales and that fined over-head costs , eneluding depreciation, will be $10,00 a year (0.60) 80,0 + Lo, c0 = 58, ov0 Depreciation expense will be determined for the year in accordance with the MACRS yate. Casts May co's marginal federal-plus- State tax vate is y0% ; its cost of capital is 12%; and for capital budgeting pur poses , the company's policy is to assume that operating cash flows occur at the end of each year. The plant will begin operation immediately after the invesiment is made, and the first operating cash flows will occur exactly one year Latex. The MACRS table is given below : Property Class Five -year 20.00 % Year Three - year seven-year 1. 33.33% 14-29 % 2. 44.44 32.00 24.49 3 12-82 19. 20 17.49 4 7.41 24. 52 12. 49 11.52 8.93 5.76 8. 13 7 8.93 4.45 Commute the operating cash flow over the proJects life. Also provide explanation of working
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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Transcribed Image Text:Mayco , Inc Would Like to set up
• May co has an option to buy
new plant (expand) .
a
existing building at
Corrntly s
a cost of $24, 0 Necessary equipment for the plant will cast
$ 16,000, including installation costs. The equipment falls into a
MACRS 5-year class. The building falls into a MACRS
39- year class. The project would also require an initial
investment of $12, 000 in net wor lking capital The initial
an
working capital investment will be made at the time of the
purchase of the building and equipment. The projects estimated
economic life is four years At the end of that time, the
buiding is expected to have a morket value of $ 15,00 and a
book value of $ 24, 8 16 , whereas the equipment is expected to
have a market value af $4,00 and a baok value of $ 2,720.
Annual Sales will be $ 80,00 . The production de portment has
estimated that variable manu factuning costs will total b0% of
Sales and that fined over-head costs, exeluding depre ciation,
will be $10,000
Depreciation expense will be determined for the year in
accoredance with the MACRS yate .
Casts
a year (0.60) 80, 000 + 10, 000 = S8, 00
May co's marginal federal - plus - State tax vate is y0% ;
its cost of capital is 12 % ; and for capital budgeting
pur poses , the company's policy is to assume that operating cash
flows occur at the end of each year. The plant will begin
operations immediately aftev the investment is made, and the
first operating cash flows will occur exactly one year Later.
The MACRS table is given below :
Property Class
Five -year
20.00 %.
Year
Three - year
seven-year
33. 33%
14.29 %
2.
44.44
32.00
24.49
3
12.82
19. 20
17.49
4
7.41
11. 52
12. 49
11.52
8.93
5.76
8. 93
7
8.93
4.45
Commute the operating cash flow over the proJects life.
Also provide explanation of working
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