Question 3Heymann Manufacturing recently purchased a new machine for $350,000.It cost $20,000 to ship the machine to Heymann's facility, and it cost another $50,000 to get itinstalled. Purchase of the new machine will require Heymann to increase its working capital by$25,000 (spare parts inventory). If the new machine falls into the MACRS 3-year class, whatamount will the firm be able to depreciate during the next five years? (The MACRS rates for 3-year class are Year 1: 33% , Year 2: 45%, Year 3: 15%, Year 4: 7%.)

For tax purposes, the United States uses a depreciation technique called MACRS, or Modified…

Answered: Question 3 Heymann Manufacturing…

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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19 A $89,000 machine with a 7-year class life was purchased 3 years ago. The machine will now be sold for $31,000 and replaced with a new machine costing $65,000, with a 5-year class life. The new machine will not increase sales, but will decrease operating costs by $16,000 per year. Simplified straight line depreciation is employed for both machines, and the marginal corporate tax rate is 34 percent. What is the initial outlay for the project? NOTE-- ALTHOUGH THE INITIAL OUTLAY IS NEGATIVE, PLEASE ENTER YOUR ANSWER AS A POSITIVE SIGN. IN OTHER WORDS, IF YOUR ANSWER IS -10,000, ENTER IT AS 10,000. DO NOT ENTER THE DOLLAR SIGN.
• Option 1: Continue to use the old machine: A machine now in use, whichwas bought five years ago for $5.000, has been fully depreciated. It can besold for $3,000, but could be used for three more years (remaining usefullife), al the end of which time it would have no salvage value. The annualoperating and maintenance costs for the old machine amount to $12,00.• Option 2: Replace the old machine: A new machine can be purchased atan invoice price of $ 15.000 to replace the present equipment. Because ofthe nature of the manufactured product, the new machine has an expectedeconomic life of three years, and it will have no salvage value at the end orthat time. The new machine's expected operating and maintenance costsamount to $2,500 for the first year and $3,500 for each of the next two years. The income tax rate is 35%. Any gains will also be taxed at 35%. The allowed depreciation amounts for the new machine are $1,500 during the first year. and $2.600 per year for the next two years.…
Question 5 A $60,000 machine with a 6-year class life was purchased 2 years ago. The machine will now be sold for $50,000 and replaced with a new machine costing $79,000, with a 10-year class life. The new machine will not increase sales, but will decrease operating costs by $9,000 per year. Simplified straight line depreciation is employed for both machines, and the marginal corporate tax rate is 34 percent. What is the incremental annual cash flow associated with the project?
Problem An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $6,100,000 and will be sold for $1,300,000 at the end of the project. If the tax rate is 27%, what is the after-tax salvage value of the asset? MACRS Depreciation: 2 3 4 5 6 7 8 3 year class 33.33% 44.45% 14.81% 7.41% 5 year class 20.00% 32.00% 19.20% 11.52% 11.52% 5.76% 7 year class 14.29% 24.49% 17.49% 12.49% 8.93% 8.92% 8.93% 4.46%
7 A firm requires power shovels for its open pit mining operation. This mining equipment, with a first cost of $200,000, has an estimated salvage value of $50,000 at the end of 8 years’ service. If interest rate is 12%, calculate the amount of earning on an equivalent annual basis so that the firm recovers its investment capital plus earns a return on the capital committed to the equipment during its life time.
Project 2 Harris Dance Company, Inc., a manufacturer of dance and exercise apparel, is considering replacing an existing piece of equipment with a more sophisticated machine. The following information is given. The firm pays 40 percent taxes on ordinary income and capital gains. Project 2 Questions: 1) Calculate the book value of the existing asset being replaced. 2) Calculate the tax effect from the sale of the existing asset. 3) Calculate the initial investment required for the new asset. 4) Calculate the incremental earnings before depreciation and taxes for 5 years. 5) Calculate the incremental depreciation for six years. 6) Summarize the incremental after-tax cash flow (relevant cash flows) for years t = 0 through t = 6. 7) With the given information, compute the payback period. 8) ) With the given information in and 15 percent cost of capital, (a) Compute the net present value. (b) Should the project be accepted?
Question 1 The TLC Yogurt Company has decided to capitalize on the exercise fad and plans to open an exercise facility in conjunction with its main yogurt and health foods store. To get the project under way, the company will rent additional space adjacent to its current store. The equipment required for the facility will cost $50,000. Shipping and installation charges for the equipment are expected to total $5,000. This equipment will be depreciated on a straight-line basis over its five-year economic life to an estimated salvage value of $0. In order to open the exercise facility, TLC estimates that it will have to add about $7,000 initially to its net working capital in the form of additional inventories of exercise supplies, cash, and accounts receivable for its exercise customers. In addition, TLC expects that it will have to add about $5,000 per year to its net working capital in years 1, 2, and 3 and nothing in years 4 and 5. All net working capital…
Question 1 The TLC Yogurt Company has decided to capitalize on the exercise fad and plans to open an exercise facility in conjunction with its main yogurt and health foods store. To get the project under way, the company will rent additional space adjacent to its current store. The equipment required for the facility will cost $50,000. Shipping and installation charges for the equipment are expected to total $5,000. This equipment will be depreciated on a straight-line basis over its five-year economic life to an estimated salvage value of $0. In order to open the exercise facility, TLC estimates that it will have to add about $7,000 initially to its net working capital in the form of additional inventories of exercise supplies, cash, and accounts receivable for its exercise customers. In addition, TLC expects that it will have to add about $5,000 per year to its net working capital in years 1, 2, and 3 and nothing in years 4 and 5. All net working capital…
QUESTION 8 The MLA investments purchased a machine a few years ago. The original cost of the machine was $140000. The machine is depreciated to an assumed salvage value of zero using MACRS five-year class schedule. However, after using the machine for four years, the company decided to sell it for a price of $55000. If the company's marginal tax rate is 21 percent, what is the after-tax cash flow associated with this transaction? The depreciation rates from year 1 to 6 are 20% ,32%, 19.2%, 11.52%, 11.52%, and 5.76 percent, respectively.
question 12 One year ago, your company purchased a machine used in manufacturing for $115,000.You have learned that a new machine is available that offers many advantages and you can purchase it for $160,000 today. It will be depreciated on a straight-line basis over 10 years and has no salvage value. You expect that the new machine will produce a gross margin (revenues minus operating expenses other than depreciation) of $35,000 per year for the next 10 years. The current machine is expected to produce a gross margin of $24,000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, and has no salvage value, so depreciation expense for the current machine is $10,455 per year. The market value today of the current machine is $55,000.Your company's tax rate is 35%, and the opportunity cost of capital for this type of equipment is 11%. Should your company replace its year-old machine? The NPV of replacing the year-old…
Question 5 What is the after-tax salvage value of a 3-year MACRS machine with the $10,000 purchase price if it is sold after 3 years at a salvage value of $500? The annual depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%, and the tax rate is 25%. $741 $560.25 $935.25 -$241 O-$60.25
shj.8 A company is considering the purchase of a new production machine and is not sure whether the project fulfills its investment objective. The company requires that all investments must have a positive net present value (NPV). The machine costs $100,000 and will be depreciated for tax purposes on a straight-line basis over its useful life of five years. The machine has a $0 salvage value. The project will generate $30,000 of pretax operating cash inflow annually. The company has a 25% effective income tax rate and uses a 10% discount rate for investment projects. Which of the following represents the NPV of the project? Select one: a. $(14,707) b. $(33,661) c. $13,724 d. $4,246

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