XYZ Manufacturing Corporation currently has production equipment that has 4 years of remaining life.  The equipment was purchased a year ago at a cost of $10,000.  The annual depreciation for this machine is $1,800 and its expected salvage value is $1,000.  The equipment can be sold today for $8,000.  The company has been considering the purchase of a new machine that will replace the existing one.  The new equipment costs $15,000 and would increase sales (through increased production) by $2,000 per year and decrease operating costs by $1,000 per year.  The equipment will be worthless after 4 years.  The applicable depreciation rates are 0.33, 0.45, 0.15, and 0.07.  The company's tax rate is 40 percent and its cost of capital is 12 percent.    What is the Net Investment (NINV)

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
icon
Related questions
Question

XYZ Manufacturing Corporation currently has production equipment that has 4 years of
remaining life.  The equipment was purchased a year ago at a cost of $10,000.  The annual depreciation for this machine is $1,800 and its expected salvage value is $1,000.  The equipment can be sold today for $8,000.  The company has been considering the purchase of a new machine that will replace the existing one.  The new equipment costs $15,000 and would increase sales (through increased production) by $2,000 per year and decrease operating costs by $1,000 per year.  The equipment will be worthless after 4 years.  The applicable depreciation rates are 0.33, 0.45, 0.15, and 0.07.  The company's tax rate is 40 percent and its cost of capital is 12 percent.    What is the Net Investment (NINV) 

Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education