Determine the break-even purchase price in terms of present value of the harvester. (Donot round intermediate calculations and round your answer to 2 decimal places, e.g.,32.16.)Purchase price The Cornchopper Company is considering the purchase of a new harvester.• The new harvester is not expected to affect revenue, but operating expenses willbe reduced by $13,600 per year for 10 years.• The old harvester is now 5 years old, with 10 years of its scheduled life remaining.It was originally purchased for $74,000 and has been depreciated by the straight-line method.• The old harvester can be sold for $21,600 today.• The new harvester will be depreciated by the straight-line method over its 10-yearlife.• The corporate tax rate is 21 percent.. The firm's required rate of return is 15 percent.• The initial investment, the proceeds from selling the old harvester, and anyresulting tax effects occur immediately.• All other cash flows occur at year-end.. The market value of each harvester at the end of its economic life is zero.

Financial break-even refers to point where the net present value of a project equates to zero at a…

Answered: The Cornchopper Company is considering…

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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Munoz Freight Company owns a truck that cost $47,000. Currently, the truck's book value is $ 22,000, and its expected remaining useful life is four years. Munoz has the opportunity to purchase for $29,000 a replacement truck that is extremely fuel efficient. Fuel cost for the old truck is expected to be $6,500 per year more than fuel cost for the new truck. The old truck is paid for but, in spite of being in good condition, can be sold for
(a) A company is now considering to replace an old machine. The old machine was purchased at $600,000 four years ago and it is expected to work productively for six more years. The current market value of the old machine is $300,000 and it will depreciate $40,000 per year. The annual operating and maintenance expense for the old machine is S200,000 this year and will increase $60,000 per year thereafter. The new machine can be purchased at the cost of $800,000. The market value of the new machine will be $500,000 at the end of first year of ownership and will depreciate $50,000 per year thereafter. The expected annual operating and maintenance costs will be $100,000 for the first year and will increase $40,000 per year thereafter. Assume that 10% MARR per year is used for the entire replacement analysis. (ii) Determine the most economical period to keep the old (defender) machine before replacing by the new (challenger) machine.
The Ocean City water park is considering the purchase of a new log flume ride. The cost to purchase the equipment is $8,000,000, and it will cost an additional $475,000 to have it installed. The equipment has an expected life of 6 years, and it will be depreciated using a MACRS 7-year class life. Management expects to run about 150 rides per day, with each ride averaging 35 riders. The season will last for 120 days per year. In the first year, the ticket price per rider is expected to be $5.25, and it will be increased by 4% per year. The variable cost per rider will be $1.65, and total fixed costs will be $525,000 per year. After six years, the ride will be dismantled at a cost of $245,000 and the parts will be sold for $600,000. The cost of capital is 8.5%, and its marginal tax rate is 25%. Calculate the NPV, IRR, and MIRR of the new equipment. Is the project acceptable?
Builtrite is considering the purchase of a new five-year machine worth $90,000. It will cost another $10,000 to install the machine and Builtrite will need to keep an extra $9,000 in inventory on hand due to the machine's efficiency. The current machine being used is 5 years old and originally cost $60,000 and is being depreciated down to zero over a 10-year period. If the current machine were sold today, it could be sold for $45,000. In five years, the new machine is estimated to have a salvage value of $36,000. Two employees will need to be trained for the new machine at a cost of $4000. The new machine is expected to produce $80,000 in annual savings. Builtrite is in the 34% tax bracket. What is the terminal cash flow for the new machine? O $23.760 O $31,800 O $32,760
Suppose that a company is considering a machine acquisition. The new machine will cost $60.000 and the shipping and installation costs are $20.000 , all are paid in cash. The old machine is fully depreciated and will be sold for $5.000 cash immediately with the purchase of the new one. The useful life of the new machine is 5 years and the company uses accelerated method of depreciation. Tax rate is 20% for the company.Please find the investment cash outflow?
Meman
Stuart Freight Company owns a truck that cost $46,000. Currently, the truck's book value is $26,000, and its expected remaining useful life is four years. Stuart has the opportunity to purchase for $27,000 a replacement truck that is extremely fuel efficient. Fuel cost for the old truck is expected to be $6,500 per year more than fuel cost for the new truck. The old truck is paid for but, in spite of being in good condition, can be sold for only $17,000. Required Calculate the total relevant costs. Should Stuart replace the old truck with the new fuel- efficient model, or should it continue to use the old truck until it wears out? Total relevant costs Should Stuart replace or continue the old truck? Keep Old Replace With New
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DeYoung Entertainment Enterprises is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model. The old machine has a book value of $450,000 and a remaining useful life of 5 years. The current machine would be worn out and worthless in 5 years, but DeYoung can sell it now to a Halloween mask manufacturer for $135,000. The old machine is being depreciated by $90,000 per year for each year of its remaining life. If DeYoung doesn't replace the old machine, it will have no salvage value at the end of its useful life. The new machine has a purchase price of $775,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $105,000. The applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. Being highly efficient, it is expected to economize on electric power usage, labor, and repair costs, and, most importantly, to reduce the number of defective chickens. In total,…
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 four years, it is believed that the machine could be sold for $30,000. The current machine being used was purchased 3 years ago at a cost of $40,000 and it is being depreciated down to zero over its 5-year life. The current machine's salvage value now is $12,000. The new machine would increase EBDT by $56,000 annuall Builtrite's marginal tax rate is 34%. What is the TCF associated with the purchase of this new machine if it is sold at the end of year 4? Ⓒ$30,000 $23,880 $20,500 $19,800
The Darlington Equipment Company purchased a machine 5 years ago at a cost of $85,000. The machine had an expected life of 10 years at the time of purchase, and it is being depreciated by the straight-line method by $8,500 per year. If the machine is not replaced, it can be sold for $5,000 at the end of its useful life. A new machine can be purchased for $170,000, including installation costs. During its 5-year life, it will reduce cash operating expenses by $45,000 per year. Sales are not expected to change. At the end of its useful life, the machine is estimated to be worthless. The new machine is eligible for 100% bonus depreciation at the time of purchase. The old machine can be sold today for $50,000. The firm's tax rate is 25%. The appropriate WACC is 9%. If the new machine is purchased, what is the amount of the initial cash flow at Year 0 after bonus depreciation is considered? Cash outflow should be indicated by a minus sign. Round your answer to the nearest dollar.$…
The Ocean City water park is considering the purchase of a new log flume ride. The cost to purchase the equipment is $8,000,000, and it will cost an additional $475,000 to have it installed. The equipment has an expected life of 6 years, and it will be depreciated using a MACRS 7-year class life. Management expects to run about 150 rides per day, with each ride averaging 35 riders. The season will last for 120 days per year. In the first year, the ticket price per rider is expected to be $5.25, and it will be increased by 4% per year. The variable cost per rider will be $1.65, and total fixed costs will be $525,000 per year. After six years, the ride will be dismantled at a cost of $245,000 and the parts will be sold for $600,000. The cost of capital is 8.5%, and its marginal tax rate is 25%. a. Calculate the initial outlay, annual after-tax cash flow for each year, and the terminal cash flow.

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