KOne year ago, your company purchased a machine used in manufacturing for $110,000. You have learned that a newmachine is available that offers many advantages; you can purchase it for $150,000 today. It will be depreciated ona straight-line basis over 10 years, after which it has no salvage value. You expect that the new machine willcontribute EBITDA (earnings before interest, taxes, depreciation, and amortization) of $50,000 per year for the next10 years. The current machine is expected to produce EBITDA of $22,000 per year. The current machine is beingdepreciated on a straight-line basis over a useful life of 11 years, after which it will have no salvage value, sodepreciation expense for the current machine is $10,000.00 per year. All other expenses of the two machines areidentical. The market value today of the current machine is $50,000. Your company's tax rate is 35%, and theopportunity cost of capital for this type of equipment is 12%. Is it profitable to replace the year-old machine?The NPV of the replacement is(Round to the nearest cent.)

If a firm needs to decide whether a machine should be replaced or not, it is known as replacement…

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 $1.19 million three years ago and have been applying straight-line depreciation to zero for a seven-year life. Your tax rate is 22%. If you sell the machine today (after three years of depreciation) for $701,000, what is your incremental cash flow from selling the machine? Your total incremental cash flow will be $ (Round to the nearest cent.)
mani.5
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?
You invested on a special pizza oven for $150,000. This commercial oven is depreciated over a 7-year period, and it is expected to have a $20,000 estimated market value at the end of the 7 years. Using the straight-line method, what is the book value in year 5? a) Between $31,900 and $32,300 b) Between $45,500 and $45,900 O c) Between $33,000 and $33,400 d) None of the answers are correct e) Between $58,300 and $58,700 f) Between $56,900 and $57,300
One year ago, your company purchased a machine used in manufacturing for $107,800. You have learned that a new machine is available that offers many advantages and you can purchase it for $170,000 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 $35,000 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 $9,800 per year. The market value today of the current machine is $60,000. Your company's tax rate is 30%, 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…
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…
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…
6
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.) .....

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