Q4 Diva Dance Company, a manufacturer of dance and exercise apparel, is considering replacing an existing piece of equipment with a more sophisticated machine. The firm pays 40 percent taxes on ordinary income and capital gains. The information of the existing and proposed machine are shown in Table Q4. (a) (b) (c) (d) Year Table Q4: Information for existing and new machine 1 2 3 4 5 Existing Machine Cost RM100,000 • Purchased 2 years ago • Depreciation using MACRS over a 5-year recover schedule • Five year usable life remaining Earnings before depreciation and taxes 160,000 150,000 140,000 140,000 140,000 Proposed Machine Cost = RM150,000 • Installation = RM20,000 Depreciation using MACRS over a 5-year recover schedule . Five year usable life expected 170,000 170,000 170,000 170,000 170,000 Calculate the book value of the existing asset being replaced. Prepare the incremental cash flow schedule. Calculate the tax effect from the sale of the existing asset. Calculate the initial investment required for the new asset.
Q4 Diva Dance Company, a manufacturer of dance and exercise apparel, is considering replacing an existing piece of equipment with a more sophisticated machine. The firm pays 40 percent taxes on ordinary income and capital gains. The information of the existing and proposed machine are shown in Table Q4. (a) (b) (c) (d) Year Table Q4: Information for existing and new machine 1 2 3 4 5 Existing Machine Cost RM100,000 • Purchased 2 years ago • Depreciation using MACRS over a 5-year recover schedule • Five year usable life remaining Earnings before depreciation and taxes 160,000 150,000 140,000 140,000 140,000 Proposed Machine Cost = RM150,000 • Installation = RM20,000 Depreciation using MACRS over a 5-year recover schedule . Five year usable life expected 170,000 170,000 170,000 170,000 170,000 Calculate the book value of the existing asset being replaced. Prepare the incremental cash flow schedule. Calculate the tax effect from the sale of the existing asset. Calculate the initial investment required for the new asset.
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
Related questions
Question
Please solve this question in comprehensive and detailed manner with step-by-step algorithm and formula. Reject any excel-based solution/answer's sheet.
Transcribed Image Text:Q4
Diva Dance Company, a manufacturer of dance and exercise apparel, is considering
replacing an existing piece of equipment with a more sophisticated machine. The firm
pays 40 percent taxes on ordinary income and capital gains. The information of the
existing and proposed machine are shown in Table Q4.
(a)
(b)
(c)
(d)
Year
Table Q4: Information for existing and new machine
Existing Machine
Cost = RM100,000
Purchased 2 years ago
• Depreciation using
MACRS over a 5-year
recover schedule
Five year usable life
remaining
Earnings before depreciation and taxes
1
23
4
5
160,000
150,000
140,000
140,000
140,000
Proposed Machine
• Cost = RM150,000
Installation = RM20,000
• Depreciation using
MACRS over a 5-year
recover schedule
Five year usable life
expected
170,000
170,000
170,000
170,000
170,000
Calculate the book value of the existing asset being replaced.
Prepare the incremental cash flow schedule.
Calculate the tax effect from the sale of the existing asset.
Calculate the initial investment required for the new asset.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education