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
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
Related questions
Question
![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](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F71e73376-288f-44a2-851a-a51375f80b6c%2F3aa66756-11f3-4661-adce-096ac96968f3%2F6pxav4t_processed.jpeg&w=3840&q=75)
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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