St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings before depreciationfrom $30,000 to $54,000 per year. The new machine will cost $90,000, and it will have an estimated life of 8 years and no salvage value. The new rivetingmachine is eligible for 100% bonus depreciation at the time purchase. The applicable corporate tax rate is 25%, and the firm's WACC is 16%. The oldmachine has been fully depreciated and has no salvage value.What is the NPV of the project? Negative value, if any, should be indicated by a minus sign. Round your answer to the nearest cent.$Should the old riveting machine be replaced by the new one?-Select-

Concept. Net present value is calculated by deducting initial investment from present value of cash…

Answered: St. Johns River Shipyards 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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Similar questions

Corf's Dog House is considering the installation of a new computerized pressure cooker for hot dogs. The cooker will increase sales by $9,500 per year and will cut annual operating costs by $03.300. The system will cost $50100 to purchase and install. This system is expected to have a 5-year life and will be depreciated to zero using straight-line depreciation and have no salvage value. The tax rate is 40 percent and the required return is 30.8 percent. What is the NPV of purchasing the pressure cooker? Mutiple Choice O ● O $23,047 -40335 $5.603 -$2674 $6300
Moore & Moore (MM) is considering the purchase of a new machine for $50,000, installed. MM will use the MACRS accelerated method to depreciate the machine, which is classified as 5-year property (see the following MACRS table for depreciation rates). MM expects to sell the machine at the end of its 4-year operating life for $10,000. If MM's marginal tax rate is 40%, what will the after-tax cash flow be when it disposes of the machine at the end of Year 4? Annual depreciation rates for years 1 through 6 are respectively as follows: 20%, 32%, 19%, 12%, 11%, 6%. A. $7,656 B. $8,059 C. $8,484 D. $8,930 E. $9,400
Daily Enterprises is purchasing a $10.45 million machine. It will cost $64,247.00 to transport and install the machine. The machine has a depreciable life of five years using the straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.13 million per year along with incremental costs of $1.50 million per year. Daily's marginal tax rate is 34.00%. The cost of capital for the firm is 15.00%. (answer in dollars..so convert millions to dollars) The project will run for 5 years. What is the NPV of the project at the current cost of capital?
Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $8.4 million, of which 65% has been depreciated. The used equipment can be sold today for $4.2 million, and its tax rate is 25%. What is the equipment's after-tax net salvage value? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000. Round your answer to the nearest dollar.
Marston Manufacturing Company is considering a project that requires an investment in new equipment of $3,780,000. Under the new tax law, the equipment is eligible for 100% bonus depreciation at t = 0 so the equipment will be fully depreciated at the time of purchase. Marston estimates that its accounts receivable and inventories need to increase by $720,000 to support the new project, some of which is financed by a $288,000 increase in spontaneous liabilities (accounts payable and accruals). The company's tax rate is 25%. The after-tax cost of Marston’s new equipment is . Marston’s initial net investment outlay is . Suppose Marston’s new equipment is expected to sell for $600,000 at the end of its four-year useful life, and at the same time, the firm expects to recover all of its net operating working capital (NOWC) investment. Remember, that under the new tax law, this equipment was fully depreciated at t = 0. If the firm’s tax rate is 25%, what is the…
Your firm needs a computerized machine tool lathe which costs $47,000 and requires $11,700 in maintenance for each year of its 3- year life. After three years, this machine will be replaced. The machine falls into the MACRS 3-year class life category, and neither bonus depreciation nor Section 179 expensing can be used. Assume a tax rate of 21 percent and a discount rate of 11 percent. Calculate the depreciation tax shield for this project in year 3. Note: Round your answer to 2 decimal places. Answer is complete but not entirely correct. 4,286.00 Depreciation tax shieldi
Daily Enterprises is purchasing a $10.41 million machine. It will cost $65,217.00 to transport and install the machine. The machine has a depreciable life of five years using the straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.47 million per year along with incremental costs of $1.23 million per year. Daily's marginal tax rate is 35.00%. The cost of capital for the firm is 11.00%. (answer in dollars..so convert millions to dollars) The project will run for 5 years. What is the NPV of the project at the current cost of capital?
Daily Enterprises is purchasing a $10.3 million machine. It will cost $54,000 to transport and install the machine. The machine has a depreciable life of five years using straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.3 million per year along with incremental costs of $1.3 million per year. Daily's marginal tax rate is 21%. You are forecastin incremental free cash flows for Daily Enterprises. What are the incremental free cash flows associated with the new machine? The free cash flow for year 0 will be $ (Round to the nearest dollar.)
Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $13.5 million, of which 65% has been depreciated. The used equipment can be sold today for $5.4 million, and its tax rate is 25%. What is the equipment's after-tax net salvage value? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000. Round your answer to the nearest dollar.

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