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traight-line basis, resulting in a current book value of $15,000 and an a sed for six more years but has no market value after its depreciable life a new oven whose cost is $25,000 and whose estimated salvage valu en are $4,000 a year over its full life, you can use bonus depreciation o cent tax rate.

traight-line basis, resulting in a current book value of $15,000 and an a sed for six more years but has no market value after its depreciable life a new oven whose cost is $25,000 and whose estimated salvage valu en are $4,000 a year over its full life, you can use bonus depreciation o cent tax rate.

Essentials Of Investments
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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Mom's Cookies, Incorporated, is considering the purchase of a new cookie oven. The original cost of the old oven was $30,000; it is now five years old, and it has a current market value of $13,333.33. The old oven is being depreciated over a 10-year life toward a zero estimated salvage value on a straight-line basis, resulting in a current book value of $15,000 and an annual depreciation expense of $3,000. The old oven can be used for six more years but has no market value after its depreciable life is over. Management is contemplating the purchase of a new oven whose cost is $25,000 and whose estimated salvage value is zero. Expected before-tax cash savings from the new oven are $4,000 a year over its full life, you can use bonus depreciation on the oven, and the cost of capital is 10 percent. Assume a 21 percent tax rate. What will the cash flows for this project be? Note: Round your answers to the nearest dollar amount. Year FCF 0 1 2 3 4 5
Transcribed Image Text:Mom's Cookies, Incorporated, is considering the purchase of a new cookie oven. The original cost of the old oven was $30,000; it is now five years old, and it has a current market value of $13,333.33. The old oven is being depreciated over a 10-year life toward a zero estimated salvage value on a straight-line basis, resulting in a current book value of $15,000 and an annual depreciation expense of $3,000. The old oven can be used for six more years but has no market value after its depreciable life is over. Management is contemplating the purchase of a new oven whose cost is $25,000 and whose estimated salvage value is zero. Expected before-tax cash savings from the new oven are $4,000 a year over its full life, you can use bonus depreciation on the oven, and the cost of capital is 10 percent. Assume a 21 percent tax rate. What will the cash flows for this project be? Note: Round your answers to the nearest dollar amount. Year FCF 0 1 2 3 4 5
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Section 179 Deduction and Modified Accelerated Cost Recovery System (MACRS) Depreciation
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