Q1: ity Deema International Corp., a top textile manufacturer in Palestine, wants to start producing cotton products, and they are considering the purchase of a new woolen mill machine that costs $52, 000. The machine has a useful life of 5 years, however, due to the rapid changes in the market, it has been planned that this machine will be used only for two years. At the end of these two years, it will be sold for $22,000. The related financial data is given as below: The machine falls into MACRS five-year class. The associated depreciation rates are given as below: Year 3 4 6 Depreciation Rate 20% 32% 19.2% 11.52 % 11.52% 5.76% The new machine is expected to generate an additional annual revenue of $82,000. The operation and maintenance cost of the machine is expected to be $22,000 in the first year, and $27,000 in the second year. . There is a working capital requirement of $6,000 at the beginning of each year, which is to be spent on material expenses. The working capital will be fully recovered at the end of two years. The marginal tax rate of the company is 40% and the market interest is 18%.
Q1: ity Deema International Corp., a top textile manufacturer in Palestine, wants to start producing cotton products, and they are considering the purchase of a new woolen mill machine that costs $52, 000. The machine has a useful life of 5 years, however, due to the rapid changes in the market, it has been planned that this machine will be used only for two years. At the end of these two years, it will be sold for $22,000. The related financial data is given as below: The machine falls into MACRS five-year class. The associated depreciation rates are given as below: Year 3 4 6 Depreciation Rate 20% 32% 19.2% 11.52 % 11.52% 5.76% The new machine is expected to generate an additional annual revenue of $82,000. The operation and maintenance cost of the machine is expected to be $22,000 in the first year, and $27,000 in the second year. . There is a working capital requirement of $6,000 at the beginning of each year, which is to be spent on material expenses. The working capital will be fully recovered at the end of two years. The marginal tax rate of the company is 40% and the market interest is 18%.
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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Transcribed Image Text:Q1: - Deema International Corp., a top textile manufacturer in Palestine, wants to start
producing cotton products, and they are considering the purchase of a new woolen mill machine
that costs $52, 000. The machine has a useful life of 5 years, however, due to the rapid changes in
the market, it has been planned that this machine will be used only for two years. At the end of
these two years, it will be sold for $22,000. The related financial data is given as below:
The machine falls into MACRS five-year class. The associated depreciation rates are given
as below:
(a)
The new machine is expected to generate an additional annual revenue of $82,000. The
operation and maintenance cost of the machine is expected to be $22,000 in the first year,
and $27,000 in the second year.
. There is a working capital requirement of $6,000 at the beginning of each year, which is to
be spent on material expenses. The working capital will be fully recovered at the end of two
years,
The marginal tax rate of the company is 40% and the market interest is 18%.
Year:
Year
1
2
4
6
6
Depreciation Rate 20% 32% 19.2% 11.52% 11.52% 5.76%
Net Income
Revenne:
Annual Expenses:
Depreciation:
Taxable Income
Income Taxes
Fill in the income and cash flow statements in the table (on the next page).
Salvage Value:
Gains Tax:
Working Capital:
Operating Activities:
Net Income:
Depreciation:
Net Cash Flow:
Investment Activities:
Investment
Income Statement
0
1
Cash Flow Statement
2
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