Universal Electronics is considering the purchase of manufacturing equipment with a 10-year midpoint in its asset depreciation range(ADR). Carefully refer to Table 12-11 to determine in what depreciation category the asset falls. (Hint: It is not 10 years.) The asset willcost $285,000, and it will produce eamings before depreciation and taxes of $92,000 per year for three years, and then $45,000 ayear for seven more years. The firm has a tax rate of 25 percent. Assume the cost of capital is 13 percent. In doing your analysis, if youhave years in which there is no depreciation, merely enter a zero for depreciation. Use Table 12-12. Use Appendix B for anapproximate answer but calculate your final answer using the formula and financial calculator methods.a. Calculate the net present value. (Do not round intermediate calculations and round your answer to 2 decimal places.)Net present valueb. Based on the net present value, should Universal Electronics purchase the asset?O YesO No Universal Electronics is considering the purchase of manufacturing equipment with a 10-year midpoint in its asset depreciation range(ADR). Carefully refer to Table 12-11 to determine in what depreciation category the asset falls. (Hint: It is not 10 years.) The asset willcost $285,000, and it will produce eamings before depreciation and taxes of $92,000 per year for three years, and then $45,000 ayear for seven more years. The firm has a tax rate of 25 percent. Assume the cost of capital is 13 percent. In doing your analysis, if youhave years in which there is no depreciation, merely enter a zero for depreciation. Use Table 12-12. Use Appendix B for anapproximate answer but calculate your final answer using the formula and financial calculator methods.a. Calculate the net present value. (Do not round intermediate calculations and round your answer to 2 decimal places.)Net present valueb. Based on the net present value, should Universal Electronics purchase the asset?O YesO No

The difference between the current value of cash inflows and outflow of cash over a period of time…

Answered: Universal Electronics is considering…

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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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 management of Nebraska Corporation is considering the purchase of a new machine costing $490,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability: Operating Net Cash Year Income Flow 1 $100,000 $180,000 2 40,000 120,000 40,000 100,000 4 10,000 90,000 10,000 120,000 The average rate of return for this investment is Oa. 10% Оb. 18% Ос. 16% С. Od. 58%
An entrepreneur wants to evaluate a project for 4 years of operation.As an initial investment, project requires purchase of fixed assets for $ 20,000, which will last exactly 4 years, at end of which they are expected to have no scrap value. Expected sales revenue amounts to $9,000 per year, while total out-of-pocket expenses are expected to be $1,800 per year.IT IS REQUESTED: Considering that investor's opportunity cost is 12% and income tax rate is 27%.a) Determine income subject to income tax and net income for each year.b) Based on above, determine net cash flow for each year.c) Determine if investment under study is profitable, calculating NPV and IRR. Develop your calculations on a excel spreadsheet. Note: Assume that useful life of fixed assets for income tax purposes is equal to their economic useful life.
A company is considering a new 6-year project that will have annual sales of $234,000 and costs of $146,000. The project will require fixed assets of $265,000, which will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, 11.52 percent, and 5.76 percent, respectively. The company has a tax rate of 34 percent. What is the operating cash flow for Year 2? a. 68460 b. 86912 c. 58752 d. 73097 e. 75379
Wilson Corp, is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $50,000. The equipment will have an initial cost of $600,000 and have an 8-year life. The salvage value of the equipment is estimated to be $100,000. If the hurdle rate is 10%, what is the approximate net present value? (Future Value of $1. Present Value of $1. Future Value Annuity of $1. Present Value Annuity of $1.) (Use appropriate factor from the PV tables. Round your final answer to the nearest dollar amount.) Multiple Choice $500,000 $46,826 $100,000 Less than zero
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The possibility of acquiring new machinery at a cost of $ 40,000 is being evaluated, which may be depreciated using the 5-year MACRS method. The machine should save $20,000 annually over its 5-year life and maintenance costs are estimated at $ 7,650 annually. If the company is taxed at a rate of 39%, determine if the investment meets the requirement of providing a minimum return of 11.5% after taxes (After-Tax analysis). Assume that at the end of its useful life, the machine will sell for $ 8,750. If the average inflation rate for the period is estimated at 2.7%, Calculate the real return on the investment after considering inflation. Determine the highest starting price that can be paid to meet the MARR Make your calculations in excel in a clear and orderly way, including any table you need
Abbott Mining Systems wants to determine whether it should upgrade a piece of equipment used in deep mining operations in one of its international operations now or later. If the com- pany selects plan A, the upgrade will be purchased now for $200,000. However, if the com- pany selects plan 1, the purchase will be deferred for 3 years when the cost is expected to rise to $300,000. Abbott is ambitious; it expects a real MARR of 12% per year. The inflation rate in the country has averaged 3% per year. From only an economic perspective, determine whether the company should purchase now or later (a) when inflation is not considered and (b) when inflation is considered.
A company is considering purchasing a new piece of equipment that costs $100,000 and has an estimated useful life of 5 years. The equipment should increase annual cash receipts by $80,000 per year. Cash expenses to operate the equipment should be $25,000. The company uses straight-line depreciation. If the after-tax cost of capital is 10% and the tax rate is (Round your 30%, the net present value of this project based on the tables in the appendix is $ answer to the nearest whole number.) Need help? Review these concept resources. Read About the Concept
XYZ is evaluating a project that would require the purchase of a piece of equipment for $440,000 today. During year 1, the project is expected to have relevant revenue of $786,000, relevant costs of $201,000, and relevant depreciation of $132,000. XYZ would need to borrow $440,000 today to pay for the equipment and would need to make an interest payment of $33,000 to the bank in 1 year. Relevant net income for the project in year 1 is expected to be $337,000. What is the tax rate expected to be in year 1? A rate equal to or greater than 21.96% but less than 26.61% A rate less than 21.96% or a rate greater than 46.34% A rate equal to or greater than 31.02% but less than 38.39% A rate equal to or greater than 38.39% but less than 46.34% A rate equal to or greater than 26.61% but less than 31.02%
Argyl Manufacturing is evaluating the possibility of expanding its operations. This expansion will require the purchase of land at a cost of $150,000. A new building will cost $120,000 and will be depreciated on a straight-line basis over 10 years to a salvage value of $0. Actual land salvage at the end of 10 years is expected to be $200,000. The actual building salvage at the end of 10 years is expected to be $190,000. Equipment for the facility is expected to cost $260,000. Installation costs will be an additional $20,000 and shipping costs will be $13,000. This equipment will be depreciated as a 7-year MACRS asset. Actual estimated salvage at the end of 10 years is $0. The project will require net working capital of $75,000 initially (year 0), an additional $40,000 at the end of year 1, and an additional $40,000 at the end of year 2. The project is expected to generate increased EBIT (operating income) for the firm of $110,000 during year 1. Annual EBIT is expected to grow at a rate…
Shinoda Manufacturing, Incorporated, has been considering the purchase of a new manufacturing facility for $460,000. The facility is to be fully depreciated on a straight- line basis over seven years. It is expected to have no resale value at that time. Operating revenues from the facility are expected to be $370,000, in nominal terms, at the end of the first year. The revenues are expected to increase at the inflation rate of 5 percent. Production costs at the end of the first year will be $215,000, in nominal terms, and they are expected to increase at 6 percent per year. The real discount rate is 8 percent. The corporate tax rate is 22 percent. Calculate the NPV of the project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV

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