Should the company replace an old machine based on this information? Accurately calculate the Net Present Value (NPV) to make a recommendation.YearSavings Before Depreciation and TaxIncremental DepreciationEarnings Before TaxTax at 25%Earnings After TaxAdjustment to Add Back Depreciation01$42,000 $$(12,960) $242,000 $(43,800) $342,000 $(20,760) $456NotesTax RateDiscountRate42,000 $(13,740) $42,000 $(20,700) $42,000(10,440)25.00%10%Cost of New Machine$ (180,000)Proceeds from Sale of Old Machine$37,600Tax Benefit From Sale$5,000Annual Cash FlowsCash Flows Discounted at 10%Net Present ValueChange SignChange Sign

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Answered: Should the company replace an old…

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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Assuming the reinvestment rate is 5%, in order for the Annual Compound Growth Rate of Capital to equal the Internal Rate of Return, which of the following statements is correct? IRR= n 0 1 2 3 4 $ 5 $ es is is is i $ $ $ $ Investment $ (1,000,000) 80,000 83,333 86,667 88,667 1,224,667 10.70% The after tax reinvestment rate would have to be higher than the IRR The after tax reinvestment rate would have to be lower than the IRR There is not enough information to answer this question The after tax reinvestment rate would have to be equal to the IRR
What is the termination cash flow (everything except the operational cash flow) at the end of year 5?
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QUESTION 1 An individual is planning to pay $400,000 cash for a small motel (i.e., price inludes the land valued at $40.000). This porperty has the following expected gross pre-tax income over the next 6 years and then can be sold for $380,000 (land still valued at $40,000). уear Annual Income $ 2. 3 4. 15 9. 32,500 23,800 36,000 34,000 24,500 26,500 What is the post-tax Internal Rate of Return (IRR) of this investment and does it make sense, if MARR is 10%? The individual's tax bracket is 22% and the capital gains rate is 25%. Assume that the purchase and sale take place January 19 of the year. NOTE: This is considered as a residentail property with a service life of 27.5 years
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phia.org/spcc/principles-of-finance-practice-milest CTICE MILESTONE 1 e Milestone PDF 4 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 O This is a practice Milestone and does not count towards your score. Question Unit 1 Tutorials A If you need help Question 3 O Mark this questio Which method of depreciation calculation most likely gives a company the greatest tax benefit the soonest? O Straight line O Salvage O Declining balance O Activity-based
You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of dollars) of its profits and of its future Investments in new plant and working capital: Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation Pretax profit Tax at 30% Investment Answer is complete but not entirely correct. a. Total value b. Laputa's equity 1 $ 83 $ $ 23 60 625 375 18 12 Year From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed 60% by equity and 40% by debt. its cost of equity is 14%, its debt yields 10%, and it pays corporate tax at 30% 2 $ 103 33 70 21 15 a. Estimate the company's total value. Note: Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole amount. b. What is the value of Laputa's equity? Note: Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole amount. $ 118 38…
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You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of dollars) of its profits and of its future investments in new plant and working capital: Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation Pretax profit Tax at 30% Investment Answer is complete but not entirely correct. a. Total value b. Laputa's equity 1 $ 86 26 60 18 15 $ $ Year 629 x 377 2 $ 106 36 70 21 18 3 $ 121 41 80 From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed 60% by equity and 40 % by debt. Its cost of equity is 17%, its debt yields 8%, and it pays corporate tax at 30%. 24 21 a. Estimate the company's total value. Note: Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole amount. b. What is the value of Laputa's equity? Note: Do not round intermediate calculations. Enter your answer in millions rounded to the nearest…

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