3. Suppose that the new equipment has a cost basis of $12,000 and a salvage value of $3,000 at the endof 6 years. This asset is depreciated by the Straight-Line method. The effective income tax rate is 40% and the after-tax MARR ic = 10%. If the company is going to sell this asset after 3 years at themarket value of $6,000, what is the minimum profit per year this asset should produce to breakeventhe investment? (20%)

Name: 3. Suppose that the new equipment has a cost basis of $12,000 and a s
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Description: 3. Suppose that the new equipment has a cost basis of $12,000 and a salvage value of $3,000 at the endof 6 years. This asset is depreciated by the Straight-Line method. The effective income tax rate is 40% and the after-tax MARR ic = 10%. If the com

The cash flow that is produced by the equipment consider the tax benefits of the depreciation so…

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Suppose that the new equipment has a cost basis of $12,000 and a salvage value of $3,0 of 6 years. This asset is depreciated by the Straight-Line method. The effective income % and the after-tax MARR ic = 10%. If the company is going to sell this asset after market value of $6,000, what is the minimum profit per year this asset should produce

Suppose that the new equipment has a cost basis of $12,000 and a salvage value of $3,0 of 6 years. This asset is depreciated by the Straight-Line method. The effective income % and the after-tax MARR ic = 10%. If the company is going to sell this asset after market value of $6,000, what is the minimum profit per year this asset should produce

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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A certain company is considering the use of a concrete electric pole in the expansion of its power distribution lines. A concrete pole cost 18,000 each and will last 20 years. The company is presently using wooden poles which cost 12,000 per pole and will last 10 years. Assume annual taxes amount to 1 percent of first cost and zero salvage value in both cases. Money is worth 12 percent. 1.1. What is the amount of annual depreciation each pole? 1.2. Excluding interest on capital, what is the annual cost of the wooden pole?
What is the ERR for this project? Assume that = 12% and MARR = 20% per year. Is this project considered to be profitable? What is the simple payback period?
1.
Coronado, Inc. is considering purchasing equipment costing $39000 with a 7-year useful life. The equipment will provide cost savings of $8700 and will be depreciated straight-line over its useful life with no salvage value. Coronado Inc. requires a 9% rate of return. What is the approximate internal rate of return for this investment? Period 7 10% O 11% 000 9% 8% 7% 5.389 8% Present Value of an Annuity of 1 5.206 9% 5.033 10% 4.868 11% 4.712 14% 4.288
5. Does your company want to purchase this machine that will provide cost savings of $100,000 annually for its useful life (8 years)? The cost is $250,000; tax rate is 36% and discount rate is 14%. Compute straight-line depreciation for 8 years with zero salvage value. Calculate the cash flows and determine the NPV and IRR. Does your company want to buy this machine?
XYZ Company has an opportunity to purchase and asset that will cost the company $60,000. The asset is expected to add $12,000 per year to the company’s net income. Assuming the asset has a 5-year useful life and a zero salvage value, the unadjusted rate of return will be?
Suppose an asset has a purchase cost of $15,000, a life of five years, a salvage value of $3,000 at the end of five years, and a net annual before-tax revenue of $7,500. The firm's marginal tax rate is 35%. The asset will be depreciated by five-year MACRS.(a) Determine the cash flow after taxes, assuming that the purchase cost will be entirely financed by the equity funds.(b) Rework part (a), assuming that the entire investment would be financed by a bank loan at an interest rate of 9%.(c) Given a choice between paying the purchase cost up front from the firm's equity and using the financing method of part (b), show calculations to justify which is the better choice at an interest rate of 9%.
A certain company is considering the use of a concrete electric pole in the expansion of its power distribution lines. A concrete pole cost 18,000 each and will last 20 years. The company is presently using wooden poles which cost 12,000 per pole and will last 10 years. Assume annual taxes amount to 1 percent of first cost and zero salvage value in both cases. Money is worth 12 percent. 1.3. Excluding interest on capital, what is the annual cost of the concrete pole? 1.4. Using ROR on additional investment, which pole should be used?
A machine that costs $8,000 is expected to operate for 10 years. The estimated salvage value at the end of 10 years is $0. The machine is expected to save the company $1,554 per year before taxes and depreciation. The company depreciates its assets on a straight-line basis and has a marginal tax rate of 35 percent. What is the internal rate of return on this investment?
Assume XYZ wishes to purchase a machine for $500k that will produce widgets which will sell for $50 each. Assume variable costs of $30/unit and other fixed costs will be $100k per year. Assume a tax rate of 25%, and assume that assets purchased will be in a CCA class with a rate of 20%. Assume further the assets purchased will have a salvage value of $20,000 after the 5 year life of the project, and that interest rates are 10%. a. Compute the after-tax contribution margin. b. Find the PV break-even volume.
A machine costs $600,000 and is expected to yield an after-tax net income of $23,000 each year. Management predicts this machine has a 12-year service life and a $120,000 salvage value, and it uses straight-line depreciation. Compute this machine's accounting rate of return. Choose Numerator: 1 7 Accounting Rate of Return Choose Denominator:
Belmont Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $290,000. The equipment will have an initial cost of $1,000,000 and have an 8 year life. If there is no salvage value of the equipment, what is the accounting rate of return? Multiple Choice 21.5% 29.0% 58.0% 24.0%

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