Sir please help me urgently A commercial farmer wants to acquire amechanised feed spreader that costs $80,000.He intends to operate the equipment for 5years, at which time it will need to be replaced.However, it is expected to have a salvage valueof $10,000 at the end of fifth year. The asset willbe depreciated on a straight-line basis ($16,000per year) over the 5 years, and the farmer is in a30% tax bracket. Two options of financing theequipment are available. A lease calls for leasepayments of $19,000 annually, payable inadvance. A debt alternative carries an interest of10% and debt payments will be at the start ofeach of the 5 years using mortgage type of debtamortisation.Required:i. Using present-value method, determine thebest alternativeii. Using the internal rate of return method,which is the best alternative. Does your answerdiffer from that to part (i).

By using present value method , debt alternative carrying interest of 10% is the best alternative…

Answered: Required: i. Using present-value…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 4P

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The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
Alfredo Company purchased a new 3-D printer for $900,000. Although this printer is expected to last for ten years, Alfredo knows the technology will become old quickly, and so they plan to replace this printer in three years. At that point, Alfredo believes it will be able to sell the printer for $15,000. Calculate yearly depreciation using the double-declining-balance method.
Kenzie purchased a new 3-D printer for $450,000. Although this printer is expected to last for ten years, Kenzie knows the technology will become old quickly and so she plans to replace this printer in three years. At that point, Kenzie believes she will be able to sell the printer for $30,000. Calculate yearly depreciation using the double-declining-balance method.
Cullumber Lumber, is considering purchasing a new wood saw that costs $40,000. The saw will generate revenues of $100,000 per year for five yearsThe cost of materials and labor needed to generate these revenues will total $60,000 per yearand other cash expenses will be $10,000 per year. The machine is expected to sell for $2.000 at the end of its fiveyear life and will be depreciated on a straight-line basis over five years to zeroCullumber's tax rate is 26 percentand its opportunity cost of capital is 14.20 percent. What is the project's NPV(Do not round intermediate calculationsRound final answer to decimal places, e.g. 5,275)
Barbara Thompson is considering the purchase of a piece of business rental property containing stores and offices at a cost of $350,000. Barbara estimates that annual receipts from rentals will be $55,000 and that annual disbursement. other than income taxes will be about $18,000. The property is expected to appreciate at the annual rate of 5%. Barbara expects to retain the property for 20 years once it is acquired. Then it will be depreciated on the basis of the 39-year real-property class (MACRS), assuming that the property would be placed in service on January 1.Barbara's marginal tax rate is 30%, and her MARR is 10%. What would be the minimum annual total of rental receipts that would make the investment break-even'?
Marshall-Miller & Company is considering the purchase of a new machine for $60,000, installed. The machine has a tax life of 5 years, and it can be depreciated according to the depreciation rates below. The firm expects to operate the machine for 5 years and then to sell it for $18,500. If the marginal tax rate is 40%, what will the after-tax salvage value be when the machine is sold at the end of Year 5? Complete the table -THIS QUESTION WILL BE ON THE FINAL EXCEPT WITH DIFFERENT NUMBERS. You will fill in the entire table. I am giving you a few numbers to help you check your work Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 MACRS % 20% 32% 19% 12% 11% 6% 7,200 Depreciation expense Book value 48,000 3,600 $0 If we sell at the end of year 5 for $18,500 then determine if we have a gain or a loss and the appropriate tax consequence Gain of 14,900 tax owed is $5,960
Marshall-Miller & Company is considering the purchase of a new machine for $50,000, installed. The machine has a tax life of 5 years, and it can be depreciated according to the depreciation rates below. The firm expects to operate the machine for 4 years and then to sell it for $15.500. If the marginal tax rate is 20%, what will the after-tax salvage value be when the machine is sold at the end of Year 4? Depreciation Rate 0.20 0.32 Year 1 2 3 4 56 0.19 0.12 0.11 0.00
Macoupin Mining Inc. must purchase a new coring machine that costs $60,000 and will last 15 years with a salvage value of $12,000. The annual operating expenses will be $9000 the first year, increasing by $200 each year thereafter. The annual income is $15,000 per year. If Macoupin’s MARR is 8%, determine the net future worth of the machine purchase.
You invested on a special pizza oven for $250,000. This commercial oven is depreciated over a 6-year period, and it is expected to have a $4,000 estimated market value at the end of the 6 years. Using the SOYD method, what is the book value in year 4? a) Between $45,200 and $45,500 b) Between $38,700 and $40,000 c) Between $25,200 and $25,500 d) None of the answers are correct e) Between $28,700 and $29,000 f) Between $35,200 and $35,500
A semi-tractor costs $230,000. The driver of the truck plans to use the truck for 4 years, after which point it will have a salvage value of $35,000. The cost to operate and maintain the truck each year is $10,000. If the driver has a MARR of 6%, what is the capital recovery cost of the semi-tractor?
Clear Water Company has a down-hole well auger that was purchased 3 years ago for $30,000. O&M costs are $13,000 per year. Alternative A is to keep the existing auger, which has a current market value of $9,000. It will have a $0 salvage value after 7 more years. Alternative B is to buy a new auger that will cost $61,000 and will have a $12,000 salvage value after 7 years. O&M costs are $8,000 for the new auger. Clear Water can trade in the existing auger on the new one for $15,000. Alternative C is to trade in the existing auger on a "treated auger" that requires vastly less O&M cost at only $3,500 per year. It costs $71,000, and the trade-in allowance for the existing auger is $17,000. The "treated auger" will have an $18,000 salvage value after 7 years. Alternative D is to sell the existing auger on the open market and to contract with a current competitor to use their equipment and services to perform the drilling that would normally be done with the existing auger. The competitor…

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Required: i. Using present-value method, determine the best alternative ii. Using the internal rate of return method,