Power Manufacturing has equipment that it purchased 5 years ago for $1,850,000. The equipment was used for a project that was intended to last for 7 years. However,due to low demand, the project is being shut down. The equipment was depreciated using the straight-line method and can be sold for $265,000 today. The company'stax rate is 34 percent. What is the aftertax salvage value of the equipment?O O$354,614$175,386$309,807$355,100$265,000

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Answered: Power Manufacturing has equipment that…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 10P: St. Johns River Shipyards welding machine is 15 years old, fully depreciated, and has no salvage...

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St. Johns River Shipyards welding machine is 15 years old, fully depreciated, and has no salvage value. However, even though it is old, it is still functional as originally designed and can be used for quite a while longer. A new welder will cost 182,500 and have an estimated life of 8 years with no salvage value. The new welder will be much more efficient, however, and this enhanced efficiency will increase earnings before depreciation from 27,000 to 74,000 per year. The new machine will be depreciated over its 5-year MACRS recovery period, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The applicable corporate tax rate is 25%, and the project cost of capital is 12%. What is the NPV if the firm replaces the old welder with the new one?
Montello Inc. purchases a delivery truck for $25,000. The truck has a salvage value of $6,000 and is expected to be driven for 125,000 miles. Montello uses the units-of-production depreciation method, and in year one the company expects the truck to be driven for 26,000 miles; in year two, 30,000 miles; and in year three, 40,000 miles. Consider how the purchase of the truck will impact Montellos depreciation expense each year and what the trucks book value will be each year after depreciation expense is recorded.
Alfredo Company purchased a new 3-D printer for $900,000. Although this printer is expected to last for ten years, Alfredo knows the technology will become old quickly, and so they plan to replace this printer in three years. At that point, Alfredo believes it will be able to sell the printer for $15,000. Calculate yearly depreciation using the double-declining-balance method.
Urquhart Global purchases a building to house its administrative offices for $500,000. The best estimate of the salvage value at the time of purchase was $45,000, and it is expected to be used for forty years. Urquhart uses the straight-line depreciation method for all buildings. After ten years of recording depreciation, Urquhart determines that the building will be useful for a total of fifty years instead of forty. Calculate annual depreciation expense for the first ten years. Determine the depreciation expense for the final forty years of the assets life, and create the journal entry for year eleven.
Power Manufacturing has equipment that it purchased 7 years ago for $2,350,000. The equipment was used for a project that was intended to last for 9 years. However, due to low demand, the project is being shut down. The equipment was depreciated using the straight-line method and can be sold for $360,000 today. The company's tax rate is 21 percent. What is the aftertax salvage value of the equipment? Multiple Choice $486,000 $303,222 $394,067 $360,000 О $388,389
Power Manufacturing has equipment that it purchased 6 years ago for $2,900,000. The equipment was used for a project that was intended to last for 8 years. However, due to low demand, the project is being shut down. The equipment was depreciated using the straight-line method and can be sold for $470,000 today. The company's tax rate is 21 percent. What is the aftertax salvage value of the equipment? Multiple Choice $513,350 $383,300
Replace or Keep Equipment? The old factory equipment was purchased four years ago for $925,000. Over the last four years, your company has allocated depreciation based on the straight-line method. The expected salvage value is $35,000. The current book value of the factory equipment is $620,000. The operating expenses total approximately $40,000 a year. It is estimated that the residual value (market value) of the old machine is $355,000. The CFO is contemplating whether to replace the piece of factory equipment. The replacement factory equipment would have a purchase price of $520,000, a useful life of eight years, a salvage value of 45,000, and annual operating costs of $35,000.
A dump truck was bought for P30,000 six years ago. It will have a salvage value of 3,000 four years from now. It is sold now for P8000. What is its sunk cost (a cost that can't be recovered due to certain reason) if the depreciation method used is the sinking fund method at 6 %?
The Darlington Equipment Company purchased a machine5 years ago at a cost of $85,000. The machine had an expected life of 10 years at thetime of purchase, and it is being depreciated by the straight-line method by $8,500per year. If the machine is not replaced, it can be sold for $15,000 at the end of itsuseful life.A new machine can be purchased for $170,000, including installation costs. Duringits 5-year life, it will reduce cash operating expenses by $40,000 per year. Sales are notexpected to change. At the end of its useful life, the machine is estimated to be worthless.MACRS depreciation will be used, and the machine will be depreciated over its 3-year classlife rather than its 5-year economic life, so the applicable depreciation rates are 33%, 45%,15%, and 7%.The old machine can be sold today for $55,000. The firm’s tax rate is 40%. The appropriateWACC is 9%.a. If the new machine is purchased, what is the amount of the initial cash flow atYear 0?b. What are the incremental cash…
2. The Kish Corporation is considering the purchase of a new commercial oven. The original cost of the company's existing oven was $250,000. The machine is now 10 years old and has a current market value of $50,000. The old oven is being depreciated over a 15-year useful life to a zero estimated salvage value on a straight-line basis. Management is contemplating the purchase of a new oven that costs $375,000 with an estimated salvage value of $25,000. Expected cash savings from the new oven are $45,000 a year (before tax), and the oven will require the company to increase working capital by $15,000. Depreciation is on a straight-line basis over a 5-year life, and the cost of capital is 9.50%. Assume a 21% tax rate. a. What is the net present value of the new machine? Should the replacement be made? b.
A chemical mixer was purchased 8 years ago for $100,000. If retained, it will require an investment of $50,000 to upgrade it; if upgraded, it will cost $35,000/year to operate and maintain (O&M) and will have a negligible salvage value after 5 years. A new mixer can be purchased for $120,000; it will have an annual O&M cost of $15,000 and a salvage value of $40,000 after 5 years. Alternatively, a mixer can be leased with 5 beginning-of-year lease payments of $20,000; O&M costs will be $18,000/year. If the mixer is replaced, the old mixer can be sold on the used equipment market for $15,000. Using an insider’s approach, what are (a) the EUAC of keeping the current mixer, (b) the EUAC of replacing with a new mixer, and (c) the EUAC of replacing with a leased mixer? The MARR is 10%.
2. Brown Company bought a new machine 1 year ago for 12 million dollars. At that time the machine was estimated to have a life of 6 years and no salvage value. Annual operating costs are estimated at 20 million dollars. A new machine produced by another company does the same job but with an annual operating cost of only 17 million dollars. This new machine costs $21 million with a 5 year lifespan and no salvage value. The old machine can be sold for 10 million dollars. Straight-line depreciation is used and 40 percent corporate tax. If the cost of capital is 8 percent after taxes, calculate:a). Initial investment costsb). After-tax incremental cash flow.c). NPV of new investment.

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