eBookThe Lesseig Company has an opportunity to invest in one of two mutually exclusive machines that will produce a product the company will need for the next 8years. Machine A has an after-tax cost of $8.9 million but will provide after-tax inflows of $4.2 million per year for 4 years. If Machine A were replaced, its after-tax cost would be $10 million due to inflation and its after-tax cash inflows would increase to $4.4 million due to production efficiencies. Machine B has an after-tax cost of $13.1 million and will provide after-tax inflows of $3.5 million per year for 8 years. If the WACC is 12%, which machine should be acquired? Explain.Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round youranswers to two decimal places.is the better project and will increase the company's value by $Machine Acreated by Machine (Hide FeedbackPartially Correct9.52millions, rather than the $9.90millionsCheck My Work (No more tries available)

We are going to determine the NPV of both the projects. For this we need to assume that the machine…

Answered: The Lesseig Company has an opportunity…

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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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 $104,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $19,700 per year. It would have zero salvage value at the end of its life. The project cost of capital is 10%, and its marginal tax rate is 25%. Should Chen buy the new machine? Do not round intermediate calculations. Round your answer to the nearest cent. Negative value, if any, should be indicated by a minus sign. NPV=$?
The Lesseig Company has an opportunity to invest in one of two mutually exclusive machines that will produce a product the company will need for the next 8 years. Machine A has an after-tax cost of $9.9 million but will provide after-tax inflows of $4.2 million per year for 4 years. If Machine A were replaced, its after-tax cost would be $11.8 million due to inflation and its after-tax cash inflows would increase to $4.5 million due to production efficiencies, Machine B has an after-tax cost of $13.1 million and will provide after-tax inflows of $3.6 million per year for 8 years. If the WACC is 7%, which machine should be acquired? Explain. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answers to two decimal places. Machine -Select- is the better project and will increase the company's value by $ millions, rather than the s millions created by Machine -Select-.
MIG Tools can either lease or buy some equipment. The lease payments would be $12,800 a year and the purchase price is $35,900. The equipment has a 3-year life after which it is expected to have a resale value of $5,000. The firm uses 100 percent bonus depreciation, borrows money at 8 percent, and has a tax rate of 21 percent. What is the incremental cash flow for Year 1 if the company decides to lease the equipment rather than purchase it? Multiple Choice −$19,405 −$16,805 −$17,651 −$14,184 −$14,905
Michael Scott Paper, Inc. is considering a new machine that requires an initial investment of $650, 000, including installation costs, and has a useful life of ten years. The expected annual after - tax cash flows for the machine are $90, 000 during the first two years, $115.000 during years three through six, and $85, 000 during the remaining years of its useful life. What is the net present value (NPV) when the discount rate is 5% ?
Carica Company wants to purchase a new finishing machine for its paint plant. The investment is expected to generate annual cash inflows of $150,000. The required rate of return is 12% and the current machine is expected to last for four years. Required: What is the maximum dollar amount Carica Company would be willing to spend for the machine, assuming its life is also four years? Income taxes are not considered. a. $360,300 b. $395,870 c. $263,500 d. $455,550
A company is considering the purchase of a new machine for $54,000. Management predicts that the machine can produce sales of $16,600 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $7,400 per year including depreciation of $4,600 per year. The company's tax rate is 40%. What is the payback period for the new machine? 3.25 years. 6.28 years. 5.34 years. 11.74 years. 26.47 years.
Laurel’s Lawn Care Limited has a new mower line that can generate revenues of $132,000 per year. Direct production costs are $44,000, and the fixed costs of maintaining the lawn mower factory are $17,000 a year. The factory originally cost $1.10 million and is being depreciated for tax purposes over 25 years using straight-line depreciation. Calculate the operating cash flows of the project if the firm’s tax bracket is 25%. Operating Cash Flow = _________
the to be In 2 years, XYZ is considering buying a new, high efficiency interception system. The new system would be purchased today for $46,500.00. It would be depreciated straight-line to $0 over 2 years. system would be sold for an after-tax cash flow of $14,700.00. Without the system, costs are expected to be $100,000.00 in 1 year and $100,000.00 in 2 years. With the system, $79,700.00 in 1 year and $67,000.00 in 2 years. If the tax rate is 48.30% and the cost of capital is 8.30%, what is the net present value of the new interception system project? costs are expected O $13344.34 (plus or minus $50) O $14279.01 (plus or minus $50) O $10213.60 (plus or minus $50) O $11718.49 (plus or minus $50) None of the above is within $50 of the correct answer
Laurel’s Lawn Care Limited has a new mower line that can generate revenues of $120,000 per year. Direct production costs are $40,000, and the fixed costs of maintaining the lawn mower factory are $15,000 a year. The factory originally cost $1 million and is being depreciated for tax purposes over 25 years using straight-line depreciation. Calculate the operating cash flows of the project if the firm’s tax bracket is 25%.
Novel Industries purchases a 41.2 million cyclo-converter. The cyclo-converter will be depreciated by 10.30 million per year over 4 years, starting this year. Suppose Nokela's tax rate is 40%. a) a. What impact will the cost of the purchase have on earnings for each of the next 4 years? b) What impact will the cost of the purchase have on the firm's cash flow for the next 4 years?
a company is considering the purchase of a new machine for 480,000. Management predicts that the machine can produce sales of 180,000 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling 120,000 per year including depreciation of 30,000 per year. The company's tax rate is 40%. What is the payback period for the new machine?
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