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 $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 $60,000 per year for the next 10 years. The current machine is expected to produce EBITDA of $25,000 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 38%, 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? The NPV of replacement is $. (Round to the nearest dollar.)

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 $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 $60,000 per year for the next 10 years. The current machine is expected to produce EBITDA of $25,000 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 38%, 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? The NPV of replacement is $. (Round to the nearest dollar.)

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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2
An industrial laser can be purchased and installed for $90,000$. Assume that the GDS recovery rate is given for the 7-year period. We expect that the laser stays in service for eight years, and we gain $10,000$ from the disposal of it at the end of year eight. The $11,038$ net annual value that can be attributed to this laser is constant over all the eight years. Assume that the effective income tax rate is $0.25$ and the after-tax MARR equals $15%$ per year. What is the ATCF at the end of year six? Consider the depreciation deduction based on the 7-year period GDS recovery rate.
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?
You can buy a piece of vacant land for $40,000 cash. You plan to hold it for 20 years and then sell it at a profit. During this period, you would pay annual property taxes of $815. You would have no income from the property. (a) Assuming that you want an 8% rate of return, at what net price would you have to sell the land 20 years hence? (b) What is open space conservation and why is it important? What options would you have in selling your property with this in mind?
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.) .....
You are a small business owner and have purchased a $10,000 asset that you can depreciate over four years ($2,500/per year). Under accelerated depreciation, you would be allowed to depreciate 75% of the asset's value immediately in the first year and the remaining 25% in the second year. Assume that the discount rate is 10%. Further suppose that your business usually makes $56,000 of annual profit, on which it pays a 21% tax every year. Should you claim accelerated depreciation, or should you depreciate the asset over the 4 years at $2,500 per year?
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?
Your client, Keith Bridgeport Leasing Company, is preparing a contract to lease a machine to Souvenirs Corporation for a period of 25 years. Bridgeport has an investment cost of $428,800 in the machine, which has a useful life of 25 years and no salvage value at the end of that time. Your client is interested in earning an 12% return on its investment and has agreed to accept 25 equal rental payments at the end of each of the next 25 years. Click here to view factor tables You are requested to provide Bridgeport with the amount of each of the 25 rental payments that will yield an 12% return on
Your client, Albert Jackson Leasing Company, is preparing a contract to lease a machine to Souvenirs Corporation for a period of 25 years. Jackson has an investment cost of $427,700 in the machine, which has a useful life of 25 years and no salvage value at the end of that time. Your client is interested in earning an 10% return on its investment and has agreed to accept 25 equal rental payments at the end of each of the next 25 years. Click here to view factor tables. You are requested to provide Jackson with the amount of each of the 25 rental payments that will yield an 10% return on investment. (Round factor values to 5 decimal places, eg. 1.25124 and final answer to 0 decimal places, e.g. 458,581) Amount of each rental payments
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.)
A small print shop is investing in new printing equipment that will cost $33,000. They estimate that they will gain of $11,000 per year in additional revenues for each of the next 6 years. At the end of 6 years, the equipment will have a salvage value of $3.,500. Assuming a tax rate of 22%, a MACRS 5-year property class, 50% bonus depreciation, and an after-tax MARR of 8%, compute the present worth of the printing equipment and determine whether or not the print shop should invest in it. Click here to access the TVM Factor Table calculator. Click here to access the MACRS-GDS Property Classes. Click here to access the MACRS-GDS percentages page. Click here to access the MACRS-GDS percentages for 27.5-year residential rental property. Carry all interim calculations to 5 decimal places and then round your final answer to a whole number. The tolerance is +10. Should the print shop invest in the printing equipment?
Oriole Manufacturing is considering the purchase of new computerized equipment. The machine costs $66000 and would generate $19360 in annual cost savings over its 5-year life. At the end of 5 years, the equipment would have a $4400 salvage value. Oriole's required rate of return is 12%. Click here to view the factor table. Using the present value tables, the machine's net present value is (round to the nearest dollar) O $466. O $3789. O $6286. O $69789.

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