Suppose we are thinking about replacing an old computer with a new one. The old onecost us $1,860,000; the new one will cost, $2,261,000. The new machine will bedepreciated straight-line to zero over its five-year life. It will probably be worth about$585,000 after five years.The old computer is being depreciated at a rate of $432,000 per year. It will becompletely written off in three years. If we don't replace it now, we will have to replace itin two years. We can sell it now for $639,000; in two years, it will probably be worth$189,000. The new machine will save us $423,000 per year in operating costs. The taxrate is 25 percent, and the discount rate is 12 percent.a-1. Calculate the EAC for the the old computer and the new computer. (A negativeanswer should be indicated by a minus sign. Do not round intermediatecalculations and round your answers to 2 decimal places, e.g., 32.16.)a-2. What is the NPV of the decision to replace the computer now? (A negativeanswer should be indicated by a minus sign. Do not round intermediatecalculations and round your answer to 2 decimal places, e.g., 32.16.)a-1.a-2.Old computer EACNew computer EACNPV

Step 1:a-1)Cost savings$423,000Less: Depreciation ($2,261,000/5)$452,200Profit before…

Answered: Suppose we are thinking about replacing…

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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You hired XYZ consulting firm to analyze the option to expand your sales. According to ABC consulting this is a good idea. You paid $150,000 to ABC Consulting firm for its services. Based on the ABC consulting report to decide to go ahead with the project. The new equipment costs $758,000. This cost could be depreciated at 30% per year . The equipment would actually be worth $53,000 in five years. The new equipment will generate a profit of $327,000 per year before taxes and operating costs. Suppose the new equipment requires us to increase networking capital by $15,000 when we buy it. If we require a 15% return, what is the NPV of the purchase? Assume a tax rate of 40%
Nikul
We are evaluating a project that costs $966,000, has a life of twelve years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 131,000 units per year. Price per unit is $35, variable cost per unit is $26, and fixed costs are $979,524 per year. The tax rate is 25 percent, and we require a return of 14 percent on this project. The projections given for price, quantity, variable costs, and fixed costs are all accurate to within +/- 17 percent. a. Calculate the best-case NPV. Best case b. Calculate the worst-case NPV. Worst case
although the Chen Company's milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $120,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $18,200 per year. It would have zero salvage value at the end of its life. The project cost of capital is 12%, and its marginal tax rate is 25%. Should Chen buy the new machine? Do not round intermediate calculations. Round your answer to the nearest cent. Negative value, if any, should be indicated by a minus sign.
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Although the Chen Company's milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $100,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $18,400 per year. It would have zero salvage value at the end of its life. The project cost of capital is 10%, and its marginal tax rate is 25%. Should Chen buy the new machine? Do not round intermediate calculations. Round your answer to the nearest cent. Negative value, if any, should be indicated by a minus sign. NPV: $
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give me the right answer only ASAP Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1.4 million; the new one will cost $1.7 million. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $325,000 after five years. The old computer is being depreciated at a rate of $281,000 per year. It will be completely written off in three years. If we don’t replace it now, we will have to replace it in two years. We can sell it now for $450,000; in two years, it will probably be worth $130,000. The new machine will save us $315,000 per year in operating costs. The tax rate is 22 percent, and the discount rate is 12 percent. a-1. Calculate the EAC for the old and the new computer. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a-2. What is the NPV of the decision to…
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