(Calculating project cash flows and NPV) The Guo Chemical Corporation is considering thepurchase of a chemical analysis machine. The purchase of this machine will result in an increase inearnings before interest and taxes of $80,000 per year. The machine has a purchase price of$100,000, and it would cost an additional $6,000 after tax to install this machine correctly.In addition, to operate this machine properly, inventory must be increased by $14,000. This machinehas an expected life of 10 years, after which time it will have no salvage value. Also, assumesimplified straight-line depreciation, that this machine is being depreciated down to zero, a 35percent marginal tax rate, and a required rate of return of 9 percent.a. What is the initial outlay associated with this project?b. What are the annual after-tax cash flows associated with this project for years 1 through 9?c. What is the terminal cash flow in year 10 (that is, the annual after-tax cash flow in year 10 plusany additional cash flow associated with termination of the project)?d. Should this machine be purchased?a. The initial cash outlay associated with this project is $ 120000. (Round to the nearest dollar.)b. The annual after-tax cash flows associated with this project for years 1 through 9 are $ (Roundto the nearest dollar.)

NPV is the most used method of capital budgeting based on the time value of money and can be found…

Answered: purchase of a chemical analysis…

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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Information for Terra Corp. Terra Corp is considering the purchase of a machine that is expected to cost $180,000. The machine will require an additional $40,000 to have it shipped, modified, and installed. The purchase of this machine is expected to require additional working capital of $20,000 upfront, which will be liquidated when the machine is sold off. Terra expects to use the machine for 4 years, and then sell it for $95,000. The machine will be fully depreciated over the four years, at a constant rate. In each of the four years, Terra’s revenues are expected to be $85,000 higher than they would be without the machine. Annual operating costs (not including depreciation) will also be higher, however, to the extent of $19,000. The firm pays a 30% rate in taxes, and its cost of capital is 7.5% The net present value of the project is estimated to be: $34,774 $37,694 $23,976 $16,353 $1,337
Tanner Corporation is considering the acquisition of a new machine that is expected to produce annual savings in cash operating costs of $70,000 before income taxes. The machine costs $244,000, has a useful life of five years, and no salvage value. Tanner uses straight-line depreciation on all assets, is subject to a 30% income tax rate, and has an after-tax hurdle rate of 8 %. FV of $1 at FV of an ordinary annuity at PV of $1 at PV of an ordinary annuity at Yr .8% 8% 8% 8% 1 1.080 1.000 0.926 0.926 2 1.166 2.080 0.857 1.783 3 1.260 3.246 0.794 2.577 4 1.360 4.506 0.735 3.312 5 1.469 5.867 0.681 3.993 6 1.587 7.336 0.630 4.623 Required: If the machine's accounting rate of return on the initial investment is 6%. Compute the machine's net present value
Discuss the overarching idea of Asset Liability Management and its key objectives. How does the process of Gap Analysis support Asset Liability Management?
2. Super Apparel wants to replace an old machine with a new one. The new machine would increase annual revenue by $200,000 and annual operating expenses by $80,000. The new machine would cost $400,000. The estimated useful life of the machine is 10 years with zero salvage value. i. Compute Accounting Rate of Return (ARR) of the machine using above information. ii. Should Super Apparel purchase the machine if management wants an Accounting Rate of Return of 19% on all capital investments? Hint: Use Average Income or Profit after deducting tax, depreciation, and operating expenses.
Having an issue with this problem.
The management of Kunkel Company is considering the purchase of a $21,000 machine that would reduce operating costs by $5,000 per year. At the end of the machine’s five-year useful life, it will have zero salvage value. The company’s required rate of return is 12%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table. Required: 1. Determine the net present value of the investment in the machine. 2. What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine?
Homer Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $143,000. The equipment will have an initial cost of $550,000 and have a 5-year life. If the salvage value of the equipment is estimated to be $18,000, what is the annual net cash flow? Multiple Choice 3 $125,000 $36,600 $249,400 $161,000
FNV Industries is considering the purchase of a new processing machine. The initial cost of the machine will be $246,410. The expected increase in net cash inflow as a result of the purchase is: $90,666 for the first year, $73,107 for the second year The machine will have a salvage value of $0 at the end of the second year. Assume that all cash inflows are received at the end of the year. At a discount rate of 6%, what is the net present value of the machine? Round your answer to the nearest whole dollar.
Account
XYZ Company has an opportunity to purchase and asset that will cost the company $60,000. The asset is expected to add $12,000 per year to the company’s net income. Assuming the asset has a 5-year useful life and a zero salvage value, the unadjusted rate of return will be?
although the Chen Company's milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $120,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $18,200 per year. It would have zero salvage value at the end of its life. The project cost of capital is 12%, and its marginal tax rate is 25%. Should Chen buy the new machine? Do not round intermediate calculations. Round your answer to the nearest cent. Negative value, if any, should be indicated by a minus sign.
A firm owns a drilling equipment that it is contemplating replacing. It is believed that P1,500,000 could be obtained for the old equipment if it were sold now, but it can be productively used for four more years at which time its market value will be zero. The equipment has an operating and maintenance of P600,000 per year. The firm can purchase a new machine, with the same functionality as the current machine, for P5,500,000. In four years the market value of the new machine is estimated to be P2,275,000. Annual operating and maintenance costs will be P1,850,000 per year. Should the old drilling equipment be replaced using a before-tax MARR of 15% and a study period of four years?

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