Pear Orchards is evaluating a new project that will require equipment ofThe equipment will be depreciated on a 5-year MACRS schedule. The annualdepreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52percent, and 11.52 percent, respectively. The company plans to shut down theproject after 4 years. At that time, the equipment could be sold for $69,700.However, the company plans to keep the equipment for a different project in anotherstate. The tax rate is 25 percent. What aftertax salvage value should the companyuse when evaluating the current project?$0$63,205$69,700$76,195$43,718

Depreciation represents the amount charged on an asset over its life due to obsolescence and wear…

Answered: Pear Orchards is evaluating a new…

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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Caradoc Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $410,000 is estimated to result in $150,000 in annual pre-tax cost savings. The press falls into Class 8 for CCA purposes (CCA rate of 20% per year), and it will have a salvage value at the end of the project of $55,000. The press also requires an initial investment in spare parts inventory of $20,000, along with an additional $3,100 in inventory for each succeeding year of the project. If the shop’s tax rate is 35% and its discount rate is 9%. Calculate the NPV of this project.
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An airline is considering a project of replacement and upgrading of machinery that would improve efficiency. The new machinery costs $300 today and is expected to last for 5 years with no salvage value. Straight line depreciation will be used. Project inflows connected with the new machinery will begin in one year and are expected to be $250 each year for 5 consecutive years and project outflows will also begin in one year and are expected to be $ 112.50 each year for 5 consecutive years. The corporate tax rate is 32% and the required rate of return is 9%. Calculate the project's net present value. YOU ARE NOT FINISHED. NOW GO ON TO THE SECOND PART! PART 2. Given your estimate of the NPV, should you accept or reject the project?
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