Unequal LivesThe Perez Company has the opportunity to invest in one of two mutually exclusive machines that will produce a product it will need for the foreseeable future. Machine Acosts $9 million but realizes after-tax inflows of $3.5 million per year for 4 years. After 4 years, the machine must be replaced. Machine B costs $14 million and realizesafter-tax inflows of $3 million per year for 8 years, after which it must be replaced. Assume that machine prices are not expected to rise because inflation will be offset bycheaper components used in the machines. The cost of capital is 8%. Using the replacement chain approach to project analysis, by how much would the value of thecompany increase if it accepted the better machine? Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $1.23 million shouldbe entered as 1.23, not 1,230,000. Round your answer to two decimal places$What is the equivalent annual annuity for each machine? Do not round intermediate calculations, Enter your answers in millions, For example, an answer of $1.23 millonshould be entered as 1.23, not 1,230,000. Round your answers to two decimal places.Machine At $millionMachine 65mitionCheck My Work (1 remaining)

Machine A:Initial Investment = $9 millionAfter-tax cash flow for 4 years = $3.5 millionSince machine…

Answered: The Perez Company has the 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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Ilana Industries Incorporated needs a new lathe. It can buy a new high-speed lathe for $2.0 million. The lathe will cost $31,000 per year to run, but it will save the firm $184,000 in labor costs and will be useful for 10 years. Suppose that, for tax purposes, the lathe is entitled to 100% bonus depreciation. At the end of the 10 years, the lathe can be sold for $470,000. The discount rate is 10%, and the corporate tax rate is 21%. What is the NPV of buying the new lathe? Note: A negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to 2 decimal places. NPV
You are evaluating a proposed acquisition of a new machine costing $50,000. While the machine is expected to last for 5 years, it falls into the MACRS 3-year class. Purchase of the machine would require an increase of net operating working capital of $2,000. The machine would increase the firm's revenue by $19,000 per year and its operating costs by $10,000 per year. The firm's marginal tax rate is 29 percent, and the project's cost of capital is 14 percent. What is the operating cash flow in Year 2? MACRS 3-year schedule is as follows: 33%, 45%, 15%, and 7% for years 1 to 4, respectively. Question 11 options: $11,675 $11,885 $12,095 $12,425 $12,585 $12,915
Silver Corporation is negotiating to purchase rights to manufacture and market a solar-powered toy car. The car’s inventor has offered Silver the choice of either a one-time payment of $1,500,000 today or a series of five year-end payments of $385,000. a.If Silver has a cost of capital of 9%, which form of payment should it choose? b.What yearly payment would make the two offers identical in value at a cost of capital of 9%? c.Would your answer to part a of this problem be different if the yearly payments were made at the beginning of each year? Show what difference, if any, that change in timing would make to the present value calculation.
National Integrated Systems (NIS), a global provider of heating and air conditioning is planning a project whose data is provided below. The project’s equipment has a 3 year tax life after which its salvage value will be zero. The machinery will be depreciated on a straight line basis over three years. Revenues and other operating costs are expected to be constant over the project’s life. What is the project’s cash flow in Year 1? Equipment Cost = $130,000Depreciation rate = 33.33%Annual Sales Revenue= $120,000Operating Costs (ex Depreciation) = $50,000 Tax Rate = 35%
You are evaluating a proposed acquisition of a new machine costing $50,000. While the machine is expected to last for 5 years, it falls into the MACRS 3-year class. Purchase of the machine would require an increase of net operating working capital of $2,000. The machine would increase the firm's revenue by $19,000 per year and its operating costs by $10,000 per year. The firm's marginal tax rate is 25 percent, and the project's cost of capital is 14 percent. What is the operating cash flow in Year 4? MACRS 3-year schedule is as follows: 33%, 45%, 15%, and 7% for years 1 to 4, respectively.
Your firm needs a machine which costs $120,000, and requires $33,000 in maintenance for each year of its 5 year life. After 5 years, this machine will be replaced. The machine falls into the MACRS 5-year class life category. Assume a tax rate of 35 percent and a discount rate of 15 percent. What is the depreciation tax shield for this project in year 5?
Genesis Corporation want to purchase a piece of machinery for $150,000 that will cost $20,000 to have it delivered and installed. Based on past information, they believe they can sell the machinery for $25,000 in 5 years. The company’s marginal tax rate is 34%. If the applicable CCA rate is 20% and the required return on this project is 15%, what is the present value of the CCA tax shield?
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.
llana Industries, Inc., needs a new lathe. It can buy a new high-speed lathe for $0.97 million. The lathe will cost $31,300 to run, will save the firm $127,700 in labour costs, and will be useful for 10 years. Suppose that for tax purposes, the lathe will be in an asset class with a CCA rate of 25%. llana has many other assets in this asset class. The lathe is expected to have a 10-year life with a salvage value of $91,000. The actual market value of the lathe at that time will also be $91,000. The discount rate is 15% and the corporate tax rate is 35%. What is the NPV of buying the new lathe? (Round your answer to the nearest cent.) NPV $
Geo-Star Manufacturing Company is considering a new investment in a punch-press machine that will cost $96,000 and has an annual maintenance cost of $10,800. There is also an additional overhauling cost of $23,000 for the equipment once every four years. Assuming that this equipment will last infinitely under these conditions, what is the capitalized equivalent cost of this investment at an interest rate of 15%? Click the icon to view the interest factors for discrete compounding when i=15% per year. The capitalized equivalent cost of this investment is $ thousand. (Round to the nearest whole number.) More Info Single Payment Compound Amount Factor Equal Payment Series Sinking Present Fund Compound Amount Factor (F/A, i, N) Capital Recovery Worth Factor Factor Factor N (F/P, i, N) (A/F, i, N) (P/A, i, N) (A/P, i, N) 1 1.1500 1.0000 1.0000 0.8696 1.1500 2 1.3225 2.1500 0.4651 1.6257 0.6151 3 1.5209 3.4725 0.2880 2.2832 0.4380 4 1.7490 4.9934 0.2003 2.8550 0.3503 5 2.0114 6.7424 0.1483…
The Lesseis Company has an opportunity to invest in one of two mutally exclusive machines that will produce a product the company will need for the next 8 years Machine A has an after-tax cost of $8 million but will provide after-tux inflows of $4.9 million per year for 4 years. If Machine A were replaced, its after-tax cost would be million $8.7 million due to inflation and its after-tax rash inflows would increase to $5,1 million due to production efficiencies. Machine B has an after-tax cost of $13.2 million and will provide after- tax inflows of $4,5 million for 8 years. per year If the WACC is 8%, which machine should be acquired? Enter your answers in millions, For example, on answer of $10, 550, 000 should be entered as 10.55. Do not rand intermediate calculations. Round your answers to two decimal places. millines millians, rather millions created by Machine Machine A is the better project and will increase the company's value by $ then the $ B.
What’s the present value of the following uneven cash flow stream: $0 at Time 0,$100 in Year 1 (or at Time 1), $200 in Year 2, $0 in Year 3, and $400 in Year 4 if theinterest rate is 8%? ($558.07)

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