West River Company is considering purchasing a machine (Class 8, CCA rate 20%) that will cost $1,000,000. The machine would replace an existing machine. The advantage of the new machine is it wht reduce the variable cost per unit of the product produced on these machines from $15 toS12.501 This product is sold under contract and the annual production and sales is 130,000 units. The contract's remaining life is five years, at which time the existing machine would be sold for $5.000 and the new machine, if it is purchased now, would be sold for $100,000. In either case, there would be assets remaining in this class. If the existing machine is sold now, the net realizable value would be $50,000. West River Company faces a tax rate of 32% on incremental income and requires an after-tax return of 12% on this investment. The plant accountant advises that because of the improved efficiency of the new machine, average inventory levels in the plant will be reduced by $15,000 during the life of the project. What is the net present value of the proposed investment in the new machine?

West River Company is considering purchasing a machine (Class 8, CCA rate 20%) that will cost $1,000,000. The machine would replace an existing machine. The advantage of the new machine is it wht reduce the variable cost per unit of the product produced on these machines from $15 toS12.501 This product is sold under contract and the annual production and sales is 130,000 units. The contract's remaining life is five years, at which time the existing machine would be sold for $5.000 and the new machine, if it is purchased now, would be sold for $100,000. In either case, there would be assets remaining in this class. If the existing machine is sold now, the net realizable value would be $50,000. West River Company faces a tax rate of 32% on incremental income and requires an after-tax return of 12% on this investment. The plant accountant advises that because of the improved efficiency of the new machine, average inventory levels in the plant will be reduced by $15,000 during the life of the project. What is the net present value of the proposed investment in the new machine?

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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Carr Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,900. The freight and installation costs for the equipment are $515. If purchased, annual repairs and maintenance are estimated to be $410 per year over the four-year useful life of the equipment. Alternatively, Carr can lease the equipment from a domestic supplier for $1,750 per year for four years, with no additional costs. Required: A. Prepare a differential analysis dated August 4 to determine whether Carr should lease (Alternative 1) or purchase (Alternative 2) the equipment. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required. (Hint: This is a “lease or buy” decision, which must be analyzed from the…
ABC Corporation has hired you to evaluate a new FOUR year project for the firm. The project will require the purchase of a $843,200.00 work cell. Further, it will cost the firm $51,700.00 to get the work cell delivered and installed. The work cell will be straight-line depreciated to zero with a 20-year useful life. The project will require new employees to be trained at a cost of $59,100.00. The project will also use a piece of equipment the firm already owns. The equipment has been fully depreciated, but has a market value of $5,200.00. Finally, the firm will invest $10,800.00 in net working capital to ensure the project has sufficient resources to be successful. The project will generate annual sales of $917,000.00 with expenses estimated at 38.00% of sales. Net working capital will be held constant throughout the project. The tax rate is 40.00%. The work cell is estimated to have a market value of $489,000.00 at the end of the fourth year. The firm expects to reclaim 85.00% of the…
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,130,000, and it would cost another $18,000 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $578,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $19,000. The sprayer would not change revenues, but it is expected to save the firm $359,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. a. What is the Year-0 net cash flow? $ b. What are the net operating cash flows in Years 1, 2, and 3? Year 1:$ Year 2:$ Year 3:$ c. What is the additional Year-3 cash flow (i.e, the…
DSSS CorporationDSSS Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is $135,000. The cost of shipping and installation is an additional $5,300. The asset will fall into the 3-year MACRS class. The year 1- 4 MACRS percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. Sales are expected to be $230,000 per year. Cost of goods sold will be 61% of sales. The project will require an increase in net working capital of $5,300. At the end of three years, DSSS plans on ending the project and selling the manufacturing equipment for $20,000. The marginal tax rate is 39% and DSSS Corporation’s appropriate discount rate is 15%. The fixed expenses is $12,000.Refer to DSSS Corporation. What is the operating cash flow for year 2? Group of answer choices $62,363 $65,634 $55,501 $71,719
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,060,000, and it would cost another $20,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $488,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $18,000. The sprayer would not change revenues, but it is expected to save the firm $358,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. What is the Year-0 net cash flow? $ What are the net operating cash flows in Years 1, 2, and 3? Year 1: $ Year 2: $ Year 3: $ What is the additional…
Mowbot Company is evaluating the production of a new part. It would require the acquisition of a special CNC lathe costing $375,000. The machine would be used for five years then sold for $135,000. Mowbot’s MARR is 18%. In addition to the sales quotation, the sales representative has quoted a five year lease for $81,000 per year, with the first year’s payment due on delivery. Based on pretax analysis, should Mowbot choose leasing or buying?
Heer Enterprises needs someone to supply it with 160,000 cartons of machine screws per year to support its manufacturing needs over the next three years, and you've decided to bid on the contract. It will cost you $840,000 to install the equipment necessary to start production and you estimate that it can be salvaged for $160,000 at the end of the three-year contract. Your fixed production costs will be $290,000 per year, and your variable production costs should be $8.50 per carton. If you require a 12 percent return on your investment, what is the minimum bid price you should submit?
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $940,000, and it would cost another $25,000 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $457,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (Inventory) of $16,500. The sprayer would not change revenues, but it is expected to save the firm $310,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. What is the Year-0 net cash flow? $ What are the net operating cash flows in Years 1, 2, and 3? Year 1: S Year 2: S Year 3: S What is the additional Year-3 cash flow (i.e, the after-tax…
Wildhorse Company manufactures a check-in kiosk with an estimated economic life of 10 years and leases it to Sheffield Chicken for a period of 9 years. The normal selling price of the equipment is $172,124, and its unguaranteed residual value at the end of the lease term is estimated to be $26,200. Sheffield will pay annual payments of $20,800 at the beginning of each year. Wildhorse incurred costs of $141,100 in manufacturing the equipment and $2,400 in sales commissions in closing the lease. Wildhorse has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 5%. Sheffield Chicken has an incremental borrowing rate of 5%. The lessor's implicit rate is unknown to the lessee.
DSSS CorporationDSSS Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is $135,000. The cost of shipping and installation is an additional $2,600. The asset will fall into the 3-year MACRS class. The year 1- 4 MACRS percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. Sales are expected to be $215,000 per year. Cost of goods sold will be 64% of sales. The project will require an increase in net working capital of $2,600. At the end of three years, DSSS plans on ending the project and selling the manufacturing equipment for $30,000. The marginal tax rate is 36% and DSSS Corporation’s appropriate discount rate is 12%. The fixed expenses is $12,000.Refer to DSSS Corporation. What is the initial investment outlay for this project? Group of answer choices $140200 $150,200 $35,000 $130,200
None
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,130,000, and it would cost another $21,000 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $591,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $13,500. The sprayer would not change revenues, but it is expected to save the firm $316,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. What are the net operating cash flows in Years 1, 2, and 3? Year 1: $ Year 2: $ Year 3: $ What is the additional Year-3 cash flow (i.e, the after-tax…

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