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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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.
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QUESTION 2 a) A financial analyst for a manufacturer of BMV spare part is considering using its new engine. The production of the engine can be used over the 4 years, with zero salvage value at the end of year 4. The project's initial investment is RM60,000 which depreciates under straight-line method and its discount rate is 10 percent. The firm's corporate tax rate is 40 percent. LITT Optimistic 800 Items Expected 500 Unit sales (unit) Price/unit (RM) Variable cost/unit (RM) Fixed costs/annum (RM) 75 50 2000 Pessimistic 200 65 60 3000 100 30 1000 Given the above information on the results of launching the new engine, you are required to compute: i) The worst case financial break-even point.
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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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Problem 3 A piping contractor is considering the purchase of a number of pipe laying machines for a project that will last for 6 years. Each machine will cost $ 50,000.00 and have no salvage value at the end of the project. In determining whether to make this purchase, straight line deprecation can be used and an annual income tax on profits of of 34%, and an after-tax MARR is 8%. What is the minimum annual net benefit before taxes that must be generated by the each machine in order to justify its purchase? Answer:
11.2 The Wellington Construction Company is considering acquiring a new earthmover. The mover's basic price is $90,000, and it will cost another $18,000 to modify it for special use by the company. This earthmover falls into the MACRS five-year class. It will be sold after four years for $30,000. The purchase of the earthmover will have no effect on revenues, but it is expected to save the firm $35,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate (federal plus state) is 25%, and its MARR is 10%.

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