**Question 7**Massey Enterprises is planning to buy a new machine to decrease the overall cost of production. This machine will cost $50,000 and will help to save the company $22,000 in operating costs annually. The machine will be fully depreciated using a straight-line depreciation method to a useful life of 4 years. The actual market value of the machine is expected to be zero at the termination of the project. The marginal tax rate for the company is 21 percent and the discount rate for this project is 11 percent. What is the net present value of this 4-year project?

Net Present Value The difference that arises between the current value of cash flows and the…

Answered: QUESTION 7 Massey Enterprises is…

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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Listen You want to buy a new equipment to replace an existing one. The new equipment will be depreciated down to zero using straight-line depreciation over its 10-year life. The project is a 10-year project. The market value of the new equipment at the end of year 10 is expected to be 0. The new equipment will replace an existing old equipment that has 10 years left of depreciation at a $3,000 a year. The estimated before tax proceeds from selling this existing equipment is $15,000 today. The market value in 10 years for this old equipment would be 0. The new equipment will generate annual cost savings of $12,000 before taxes. The tax rate is 20% and the discounting rate is 10%. What is the maximum price you are willing to pay today for the new equipment? For your answer, do not enter the dollar sign ($), DO NOT use commas, and you can round to zato decimals (the nearest dollar). Your Answer: Answer
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QUESTION 3 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $55. The production cost of each heater is $35. You are expecting to sell 9000 units per year. This project has an economic life of 6 years. The project requires an investment of $700000 in plants and equipment. This equipment will be depreciated to zero salvage value based on 5-year MACRS schedule. The depreciation rates from year 1 to 6 are 20 % ,32 %, 19.2 %, 11.52 %, 11.52 %, and 5.76 percent, respectively. The company will sell its old equipment for $100,000. The old machine is fully depreciated. The required rate of return for the project is 12 percent, the working capital requirement is 10 percent of the next year's sales revenue. The marginal corporate tax rate is 20 percent. At the termination of the project, the plant and equipment will be sold for an estimated value of $50000. Based on these assumptions, estimate the cash flow for capital expenditures.…
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The Carter Corporation, a firm in the 25% marginal tax bracket, with a 15% required rate of return or discount rate, is considering a new project. This project involves the introduction of a new product. This product is expected to last 5 years and then, because it is somewhat of a fad product, it will be terminated. Cost of new plant and equipment:$380,000,000 Shipping and installation costs: 20,000,000 Unit sales: YearUnits Sold 1 2,000,000 2 2,000,000 3 2,000,000 4 1,500,000 5 1,500,000 Sales price per unit: $800/unit in years 1-3 and $600/unit in years 4 and 5 Variable cost per unit: $400/unit throughout the five years Annual fixed costs: $250,000,000 There will be an initial working capital requirement of $2,000,000 just to get production started. At the conclusion of the project, the plant and equipment can be sold for $100,000,000. The plant and equipment will be depreciated over five years on a straight-line basis to a zero-salvage value. Required: a)…
13,000 6. The Imperial Chemical Company is considering purchasing a chemical analysis machine worth $13,000. Although the purchase of this machine will not produce any increase in sales revenues, it will result in a reduction of labour costs. In order to operate the machine properly, it must be calibrated each year. The machine has an expected life of 6 years, after which it will have no salvage value. The following table summarizes the annual savings in labour cost and the annual maintenance costs in calibration over 6 years: Year (n) Net Cash Flow ($) 0 Costs ($) Savings ($) -13,000 1 2,300 6,000 3,700 2 2,300 7,000 4,700 3 2,300 9,000 6,700 4 2,300 9,000 6,700 5 2,300 9,000 6,700 6 2,300 9,000 6,700 Find the internal rate of return for this project. [6]
Help Save & Exit Subm 16 Assume that a company is considering purchasing a machine for $50,000 that will have a five-year useful life and no salvage value. The machine will lower operating costs by $17,000 per year. The company's required rate of return is 18%. What is the net present value of this investment? Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table. Multiple Choice $3,159 О $3,896 О О $3,796 $3,359
* 00 The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $67000. The machine would replace an old piece of equipment that costs $18,000 per year to operate. The new machine would cost $8.000 per year to operate. The old machine currently in use could be sold now for a salvage value of $29,000. The new machine would have a useful life of 10 years with no salvage value. 1 What is the annual depreciation expense associated with the new bottling machine? 2 What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your enswer to 1 declmal place L.e. 0.123 should be considered as 12.3%.) Depreciation expense 2. Incremental net operating income Initial investment, 4. Simple rate of return < Prev 2 of 2…

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