You are evaluating two different machines.- Machine A costs $1,000,000, has a three-year lifewith expectedsalvage value in three years of $448,000, and haspre-tax operatingcosts of $150,000 per year.- Machine B costs $1,200,000, has a five-year lifewith expectedsalvage value in five years of $344,064, and has pre-tax operatingcosts of $200,000 per year.- Both machines are in Class 8 (CCA rate of 20percent per year).- If your tax rate is 40 percent and your discount rateis 10 percent,compute the EAC (equivalent annual cost) for bothmachines.Which do you prefer?

To determine which machine is more cost-effective, we calculated the Equivalent Annual Cost (EAC)…

Answered: You are evaluating two different…

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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Tempura, Inc., is considering two projects. Project A requires an investment of $48,000. Estimated annual receipts for 20 years are $19.000; estimated annual costs are $12,500. An alternative project, B, requires an investment of $77,000, has annual receipts for 20 years of $23,000, and has annual costs of $18,000. Assume both projects have a zero salvage value and that MARR is 11.0 %/year. Click here to access the TVM Factor Table Calculator Part a What is the present worth of each project? Project A. $ Project B: $
A machine costs $100,000 and generates $25,000 of pre-tax operating income per year. The tax rate is 40%. The machine is in a CCA class with a 20% rate. The cost of capital is 12%. The machine is expected to last 10 years and will have no salvage value. Other assets will remain in the asset class. What is the NPV of the machine?
A certain company is considering the use of a concrete electric pole in the expansion of its power distribution lines. A concrete pole cost 18,000 each and will last 20 years. The company is presently using wooden poles which cost 12,000 per pole and will last 10 years. Assume annual taxes amount to 1 percent of first cost and zero salvage value in both cases. Money is worth 12 percent. 1.1. What is the amount of annual depreciation each pole? 1.2. Excluding interest on capital, what is the annual cost of the wooden pole?
Penny and Daughter’s construction business is considering purchasing a new Bobcat. The equipment will cost $230,000 and is expected to last 14 years. The Bobcat has a salvage vale of $16,000. Calculate the depreciation AND book value for each year. You can create one table for a-d or you can create different tables for each. This problem will need to be done in excel. (30 points)a. Use straight-line depreciation. (5 points)b. Use declining-balance depreciation with a depreciation rate that ensures the book value equals the salvage vale in the last year of the life of the equipment. c. Use double declining balance depreciation. d. Use MACRS depreciation where the Bobcat is considered a 10 year property. e. Graph the Book values of each methods on a single graph. The graph should have points at each year for each BV and a line of each method. You will have 4 lines on your graph. You should include year 0 on your graph so that all four lines start at the same point. Each method should be…
A proposed cost-saving device has an installed cost of $765,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes (MACRS schedule). The required initial net working capital investment is $67,000, the tax rate is 21 percent, and the project discount rate is 9 percent. The device has an estimated Year 5 salvage value of $103,000. What level of pretax cost savings do we require for this project to be profitable? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Pretax cost savings
if a company is considering buying a system that costs 450,000 with an estimated 10-year life and a salvage value of 70,000, the estimated operating results with the new machine are, incremental revenue = 180,000, incremental expenses = 123,000 which is made up by, expenses other than depreciation = 85,000, depreciation (straight-line basis) = 38,000, and incremental income = 57,000, and all revenue and expenses other than depreciation use cash, how do I find the annual net cash flow, time of the payback period, return on investment percentage, and the Net present value, discounted at an annual rate of 6% (present value of $1 due in 10 years, discounted at 6%, is 0.558; present value of $1 received annually for 10 years, discounted at 6%, is 7.360)?
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Table 9.7 Modified ACRS depreciation allowances Property Class Year 1 NT 2 3 4567 5 6 8 3-Year 33.33% 44.45 14.81 7.41 5-Year 20.00% 32.00 19.20 11.52 11.52 5.76 7-Year 14.29% 24.49 17.49 12.49 8.93 8.92 8.93 4.46
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A machine costs $700,000 and is expected to yield an after-tax net income of $52,000 each year. Management predicts this machine has a 10-year service life and a $100,000 salvage value, and it uses straight-line depreciation. Compute this machine’s accounting rate of return.

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