One year ago, your company purchased a machine used in manufacturing for $100,000. You have learned that a newmachine is available that offers many advantages and you can purchase it for $150,000 today. It will be depreciated ona straight-line basis over 10 years and has no salvage value. You expect that the new machine will produce a grossmargin (revenues minus operating expenses other than depreciation) of $35,000 per year for the next 10 years. Thecurrent machine is expected to produce a gross margin of $20,000 per year. The current machine is being depreciatedon a straight-line basis over a useful life of 11 years, and has no salvage value, so depreciation expense for the currentmachine is $9,091 per year. The market value today of the current machine is $65,000. Your company's tax rate is 38%,and the opportunity cost of capital for this type of equipment is 10%. Should your company replace its year-oldmachine?The NPV of replacing the year-old machine is $. (Round to the nearest dollar.)

The total present value of cash inflows and outflows is known as net present value, or NPV. To put…

Answered: One year ago, your company purchased a…

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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One year ago, your company purchased a machine used in manufacturing for $90,000. You have learned that a new machine is available that offers many advantages and you can purchase it for $155,000 today. It will be depreciated on a straight-line basis over 10 years and has no salvage value. You expect that the new machine will produce a gross margin (revenues minus operating expenses other than depreciation) of $50,000 per year for the next 10 years. The current machine is expected to produce a gross margin of $22,000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, and has no salvage value, so depreciation expense for the current machine is $8,182 per year. The market value today of the current machine is $55,000. Your company's tax rate is 38%, and the opportunity cost of capital for this type of equipment is 12%. Should your company replace its year-old machine?
You purchased a machine for $1.13 million three years ago and have been applying straight-line depreciation to zero for a seven-year life. Your tax rate is 40%. If you sell the machine today (after three years of depreciation) for $710,000, what is your incremental cash flow from selling the machine?
One year ago, your company purchased a machine used in manufacturing for $120,000. You have learned that a new machine is available that offers many advantages; you can purchase it for $160,000 today. It will be depreciated on a straight-line basis over 10 years, after which it has no salvage value. You expect that the new machine will contribute EBITDA (earnings before interest, taxes, depreciation, and amortization) of $40,000 per year for the next 10 years. The current machine is expected to produce EBITDA of $25,000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, after which it will have no salvage value, so depreciation expense for the current machine is $10,909 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Your company's tax rate is 20%, and the opportunity cost of capital for this type of equipment is 10%. Is it profitable to replace the…
Penny and Daughter’s construction business is considering purchasing a new Bobcat. The equipment will cost $230,000 and is expected to last 14 years. The Bobcat has a salvage vale of $16,000. Calculate the depreciation AND book value for each year. You can create one table for a-d or you can create different tables for each. This problem will need to be done in excel. (30 points)a. Use straight-line depreciation. (5 points)b. Use declining-balance depreciation with a depreciation rate that ensures the book value equals the salvage vale in the last year of the life of the equipment. c. Use double declining balance depreciation. d. Use MACRS depreciation where the Bobcat is considered a 10 year property. e. Graph the Book values of each methods on a single graph. The graph should have points at each year for each BV and a line of each method. You will have 4 lines on your graph. You should include year 0 on your graph so that all four lines start at the same point. Each method should be…
One year ago, your company purchased a machine used in manufacturing for $95,000. You have learned that a new machine is available that offers many advantages and you can purchase it for $150,000 today. It will be depreciated on a straight-line basis over 10 years and has no salvage value. You expect that the new machine will produce a gross margin (revenues minus operating expenses other than depreciation) of $40,000 per year for the next 10 years. The current machine is expected to produce a gross margin of $25,000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, and has no salvage value, so depreciation expense for the current machine is $8,636 per year. The market value today of the current machine is $45,000. Your company's tax rate is 35%, and the opportunity cost of capital for this type of equipment is 11%. Should your company replace its year-old machine? The NPV of replacing the year-old machine is $ (Round to the…
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You purchased a machine for $1.17 million three years ago and have been applying straight-line depreciation to zero for a seven-year life. Your tax rate is 38%. If you sell the machine today (after three years of depreciation) for $788,000, what is your incremental cash flow from selling the machine?
One year ago, your company purchased a machine used in manufacturing for $105,000. You have learned that a new machine is available that offers many advantages and that you can purchase it for $150,000 today. The CCA rate applicable to both machines is 20%; neither machine will have any long-term salvage value. You expect that the new machine will produce earnings before interest, taxes, depreciation, and amortization (EBITDA) of $45,000 per year for the next 10 years. The current machine is expected to produce EBITDA of $22,000 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Your company's tax rate is 35%, and the opportunity cost of capital for this type of equipment is 10%. Should your company replace its year-old machine? What is the NPV of replacement? The NPV of replacement is $ (Round to the nearest dollar.) .....
One year ago, your company purchased a machine used in manufacturing for $120,000. You have learned that a new machine is available that offers many advantages and that you can purchase it for $160,000 today. The CCA rate applicable to both machines is 40%; neither machine will have any long-term salvage value. You expect that the new machine will produce earnings before interest, taxes, depreciation, and amortization (EBITDA) of $40,000 per year for the next ten years. The current machine is expected to produce EBITDA of $23,000 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Your company's tax rate is 45%, and the opportunity cost of capital for this type of equipment is 12%. Should your company replace its year-old machine? What is the NPV of replacement?
One year ago, your company purchased a machine used in manufacturing for $105,000. You have learned that a new machine is available that offers many advantages and that you can purchase it for $150,000 today. The CCA rate applicable to both machines is 40%; neither machine will have any long-term salvage value. You expect that the new machine will produce earnings before interest, taxes, depreciation, and amortization (EBITDA) of $40,000 per year for the next 10 years. The current machine is expected to produce EBITDA of $20,000 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Your company's tax rate is 40%, and the opportunity cost of capital for this type of equipment is 11%. Should your company replace its year-old machine? What is the NPV of replacement? The NPV of replacement is $ (Round to the nearest dollar.)

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