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 8-years. Machine A has an after-tax cost of $9.3 million but will provide after-tax inflows of $4.1 million per year for 4 years. If Machine A were replaced, its after-tax cost would be $11.1 million due to inflation and its after-tax cash inflows would increase to $4.6 million due to production efficiencies. Machine B has anafter-tax cost of $14.6 million and will provide after-tax inflows of $4.5 million per year for 8 years. If the WACC is 9%, 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. Roundyour answers to two decimal places.is the better project and will increase the company's value by $Machine Bcreated by Machine AHide FeedbackIncorrectOmillions, rather than the smillionsWork o remaining)

Initial investment = $9.3 millionCash Inflows = $4.1 million for 4 yearsInvestment after 4 years =…

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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A company is considering the purchase of a new machine for $87,000. Management predicts that the machine can produce sales of $23,200 each year for the next eight years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $4,350 per year plus depreciation of $10,800 per year. The company's tax rate is 40%. What is the payback period for the new machine? a.4.62 years b.7.00 years c.18.01 years d.10.81 years e.5.57 years
Acme Company plans to replace some obsolete equipment with new equipment that costs $232,000 and has a useful life of 16 years and a salvage value of $40,000. Acme expects that the new equipment will reduce operating costs (labor, energy, etc.) by $59,000 per year. Acme can sell the old equipment for $20,000. What is the simple rate of return on the investment in the new equipment? Round to one decimal place. 23.9% 21.6% 20.5% 22.2%
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-.
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% ?
The Wet Corp. has an investment project that will reduce expenses by $30,000 per year for 3 years. The project's cost is $35,000. If the asset is part of the 3-year MACRS category (33.33% first year depreciation) and the company's combined tax rate is 33%, what is the cash flow from the project in year 1? (Do not round intermediate calculations. Round your answer to the nearest dollar amount.) Multiple Choice $23,400 $24,730 $23,950 $25,410
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?
Stepwise
Steele's Enterprises has purchased a new machine tool which will allow the company to improve the efficiency of its operations. On an annual basis, the machine will produce 19,000 units with an expected selling price of $23, prime costs of $10 per unit, and a fixed cost allocation of $2 per unit. Annual depreciation on the machine is $13,000, and the tax rate of the company is 32%. What is the annual cash flow generated from the new machine? A. $146,280 B. $159,120 C. $172,120 D. $133,280

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