Question 2 Dorothy & George Company is planning to acquire a new machine at a total cost of $30,600. The machine's estimated life is six years and its estimated salvage value is $600. Dorothy & George Company estimates that annual cash savings from using this machine will be $8,000. The company's cost of capital is 8 percent and its income tax rate is 40 percent. The company uses straight-line depreciation. Data Cost of new machine Machine's estimated useful life Estimated salvage value Annual cost savings Cost of capital Income tax rate Required: $30,600 6 $600 $8,000 8% 40% 1. What is this investment's net after-tax annual cash inflow (rounded to nearest whole dollar)? 2. What is the payback period in years? (Round your answer to two (2) decimal places.) 3. What is the net present value (NPV of this investment? the present value annuity factor for 8%, 6 years is 4.623. Cash flow 4. What are the minimum net after-tax cost savings that make the proposed investment acceptable? The present value factor for 8%, 6 years is 0.630; the present value annuity factor fo 8%, 6 years is 4.623. Round your final answer to the nearest whole dollar.
Question 2 Dorothy & George Company is planning to acquire a new machine at a total cost of $30,600. The machine's estimated life is six years and its estimated salvage value is $600. Dorothy & George Company estimates that annual cash savings from using this machine will be $8,000. The company's cost of capital is 8 percent and its income tax rate is 40 percent. The company uses straight-line depreciation. Data Cost of new machine Machine's estimated useful life Estimated salvage value Annual cost savings Cost of capital Income tax rate Required: $30,600 6 $600 $8,000 8% 40% 1. What is this investment's net after-tax annual cash inflow (rounded to nearest whole dollar)? 2. What is the payback period in years? (Round your answer to two (2) decimal places.) 3. What is the net present value (NPV of this investment? the present value annuity factor for 8%, 6 years is 4.623. Cash flow 4. What are the minimum net after-tax cost savings that make the proposed investment acceptable? The present value factor for 8%, 6 years is 0.630; the present value annuity factor fo 8%, 6 years is 4.623. Round your final answer to the nearest whole dollar.
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:Question 2
Dorothy & George Company is planning to acquire a new machine at a total cost of $30,600. The
machine's estimated life is six years and its estimated salvage value is $600. Dorothy & George
Company estimates that annual cash savings from using this machine will be $8,000. The
company's cost of capital is 8 percent and its income tax rate is 40 percent. The company uses
straight-line depreciation.
Data
Cost of new machine
Machine's estimated useful life
Estimated salvage value
Annual cost savings
Cost of capital
Income tax rate
Required:
$30,600
6
$600
$8,000
8%
40%
1. What is this investment's net after-tax annual cash inflow (rounded to nearest whole dollar)?
2. What is the payback period in years? (Round your answer to two (2) decimal places.)
3. What is the net present value (NPV of this investment? the present value annuity factor for
8%, 6 years is 4.623.
Cash flow
4. What are the minimum net after-tax cost savings that make the proposed investment
acceptable? The present value factor for 8%, 6 years is 0.630; the present value annuity factor for
8%, 6 years is 4.623. Round your final answer to the nearest whole dollar.
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