Startle Corporation wants to purchase a new production machine. They currently have an old machine, which is operable for five more years and is expected to have a zero-disposal value at the end of five years. If the company buys the new machine, the old machine will be sold now for $65,000 (book value is $73,000). The new machine will cost $600,000 and will be depreciated for tax purposes on a straight-line basis over its useful life of 5 years. The new machine will not have a salvage value and will not be sold after its useful life. An additional cash investment in working capital of $50,000 will be required if the new machine is purchased. The investment is expected to generate $75,000 in before tax cash net inflows during the first year of operation. The expected before tax cash net inflow for years two through five is $220,000 each year. These cash flows do not include depreciation and are recognized at the end

Startle Corporation wants to purchase a new production machine. They currently have an old machine, which is operable for five more years and is expected to have a zero-disposal value at the end of five years. If the company buys the new machine, the old machine will be sold now for $65,000 (book value is $73,000). The new machine will cost $600,000 and will be depreciated for tax purposes on a straight-line basis over its useful life of 5 years. The new machine will not have a salvage value and will not be sold after its useful life. An additional cash investment in working capital of $50,000 will be required if the new machine is purchased. The investment is expected to generate $75,000 in before tax cash net inflows during the first year of operation. The expected before tax cash net inflow for years two through five is $220,000 each year. These cash flows do not include depreciation and are recognized at the end

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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Glickleys Financial is considering some new equipment. The equipment's price is $10,000, and it would cost another $2,000 to modify it for special use. The equipment depreciates straight line to 0 over its 4-year economic life, but will be sold after 3 years for $400. The new equipment will have no effect on revenues, but it is expected to save the firm $3,000 per year in before-tax operating costs. Glickleys marginal tax rate is 28%, and the managers estimate its cost of capital to be 9 %. What is the project's NPV? A -3535 B 4705 C 4277 D -4277 E-3889
Do not copy from other source. Blue Sky Ltd. is considering the replacement of one of its older machines that is still capable of doing the job but is considerably inefficient. A new machine costing $150,000 will reduce annual operating costs from $50,000 per year to $20,000 per year. The new machine will last 10 years and will be amortized for tax purposes at 30 percent. The older machine has a book value of $46,500. The older machine could be sold for $27,500 today. In 10 years the older machine could be scrapped for $8,000, whereas the new machine would still be worth $32,000. Also, the older machine requires a spare parts inventory (not eligible for tax-related amortization) of $5,000 that is not required by the newer machine. Blue Sky’s tax rate is 28 percent, and its cost of capital is 15 percent. Would you advise Blue Sky to replace the older machine?Assume the PV of the tax benefits is $39,000.
Daily Enterprises is purchasing a $9.6 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 $3.9 million per year along with incremental costs of $1.4 million per year. Daily's marginal tax rate is 35%. You are forecasting 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 $ -9654000. (Round to the nearest dollar.) The free cash flow for years 1-5 will be $ (Round to the nearest dollar.)
Builtrite is considering purchasing a new machine that would cost $60,000 and the machine would be depreciated (straight line) down to $0 over its five year life. At the end of five years it is believed that the machine could be sold for $15,000. The machine would increase EBDT by $42,000 annually. Builtrite’s marginal tax rate is 34%. What is the TCF associated with the purchase of this machine? $5,100 $7,500 $0 $9,900
Florida Car Wash is considering a new project whose data are shown below. The equipment to be used has a 3-year tax life. Under the new tax law, the equipment is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. At the end of the project's 3 - year life, it would have zero salvage value. No change in net operating working capital (NOWC) would be required for the project. Revenues and operating costs will be constant over the project's life, and this is just one of the firm's many projects, so any losses on it can be used to offset profits in other units. If the number of cars washed declined by 40% from the expected level, by how much would the project's NPV change? (Hint: Note that cash flows are constant at the Year 1 level, whatever that level is.) Do not round the intermediate calculations and round the final answer to the nearest whole number. WACC 10.0% Equipment cost $48,000 Number of cars washed 3,000 Average price per car $24.00 Fixed op. cost…
Your facility is undergoing a major expansion, which will require significant capitalinvestment into new machinery. The total cost of the machinery will be $7.2 Million, and theywill be purchased outright immediately. This machinery is considered a 7-year MACRSasset. However, you expect to use it for only six years before selling it for $1.5 Million. How much should the company deduct from their taxable income for depreciation expensesin year 3 for this machinery?a. $1,259,280b. $996,930c. $1,028,571d. $1,200,000
firm is considering purchasing a machine that costs $77,000. It will be used for six years, and the salvage value at that time is expected to be zero. The machine will save $41,000 per year in labor, but it will incur $16,000 in operating and maintenance costs each year. The machine will be depreciated according to five-year MACRS. The firm's tax rate is 35%, and its after-tax MARR is 18%. What is the present worth of the project?
Acefacto Inc., has asked for you to calculate the after-tax salvage value of an asset it plans on using in a construction project. The project will be depreciated straight line to a value of$670,000at the end of the project's and assets ten year life. Ace's marginal tax rate is32%. The firm will have to pay$8,047,675to buy the asset. You have estimated that they could sell the asset for$787,309to a Brazilian firm at the end of the project. Answer in dollars and cents.
Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $11.5 million, of which 65% has been depreciated. The used equipment can be sold today for $4.6 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. $
Karsted Air Services is now in the final year of a project. The equipment originally cost $27 million, of which 80% has been depreciated. Karsted can sell the used equipment today for $6.75 million, and its tax rate is 35%. What is the equipment's after-tax salvage value?
Paulita's Products Inc. is considering the new piece of equipment that costs P75,000. The equipment is expected to generate revenues before-tax cash inflows of P25,000 per year for five year. The equipment would be depreciated using straight-line method over its five-year useful life. Upon retirement, the machine is expected to have a market value of P8,000. The company considers the maximum impact of income taxes in all of its capital investment decisions. The company has a 35 percent income tax rate and desires an after-tax return of 12 percent on its investment. The present value of 1, end of 5 years at 12% is 0.56743 and for ordinary annuity is 3.60478. The net present value of the equipment is: c. P 21,248 b. P 4,539 a. P 7,042 d. P 5,453
Daily Enterprises is purchasing a $10.33 million machine. It will cost $69,436.00 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 $4.10 million per year along with incremental costs of $1.19 million per year. Daily's marginal tax rate is 37.00%. The cost of capital for the firm is 13.00%. (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?

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