Your company is considering purchasing a new machine. An investment of $200,000 will produce an initial annual benefit of $45,000, but the benefits are expected to decline by $2,500per year, making second-year benefits $42,500, third-year benefits $40,000, and so forth. Your firm uses straight-line depreciation, an 8-year useful life and no salvage value at the end ofthe 8 years. The tax rate is 42%.Question 3 Part C: Complete the following table to show the schedule of cash flows for the life of the machine. Enter your answers in the form 1234 (enter O for blank table cells). NODECIMALSYearBefore Tax Cash Flow (entereither the number with nodecimals, or 0 if blank)SL Depreciation (enter either thenumber with no decimals, or 0 ifblank)Taxable Income (entereither the number with nodecimals, or 0 if blank)Income Taxes (enter either the After Tax Cash Flow (enternumber with no decimals, or O either the number with noif blank)decimals, or 0 if blank)0123+568

Step 1: Before tax cashflow = initial annual benefit of $45,000 less the decline of $2,500 each…

Answered: Your company is considering purchasing…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider a project to supply Detroit with 27,000 tons of machine screws annually for automobile production. You will need an initial $4,600,000 investment in threading equipment to get the project started; the project will last for 5 years. The accounting department estimates that annual fixed costs will be $1,100,000 and that variable costs should be $205 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 5-year project life. It also estimates a salvage value of $475,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $308 per ton. The engineering department estimates you will need an initial net working capital investment of $440,000. You require a return of 12 percent and face a tax rate of 23 percent on this project. a. Suppose you’re confident about your own projections, but you’re a little unsure about Detroit’s actual machine screw…
Calculate the payback period
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3. An investment of $180,000 with a salvage value of $30,000 in 10 years can reduce annual operating cost by $36,000. Use MACRS with depreciation life of 5 years and effective tax of 38% to calculate the present worth of ATCF. MARR= 10%
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The Shell Corporation has a 34% tax rate and owns a piece of petroleum-drilling equipment that costs $119,000 and will be depreciated at a CCA rate of 30%. Shell will lease the equipment to others and each year receive $33,100 in rent. At the end of five years, the firm will sell the equipment for $31,600. All values are presented in today's dollars. Calculate the overall present worth of these cash flows with tax effects if market interest rate is 10% and annual inflation rate is 2%. (Note: Don't use the $ sign in your answer and round it up to 2 decimal places)
Salvage Years N 0 Net Expenses Investment A company is consider buying a new machine for $8,550. The manufacturer tells you that the machine, with regular maintenance of around $195 per year, should be able to continue working for 11 years. Based on your calculations the salvage value at that time should be about $525. According to the current asset class table the allowable depreciation rate for this machine would be 25%. If the company's tax rate is 55% and their after-tax MARR is 12%, what is the after tax annual worth of this investment? Use four decimal place accuracy for the CTF and CSF. Answer: 878 (-1,005.28) 1
2- The marginal cost for year t is computed as SV, - SV-1+SV¢ • i+ Cost, where SV denotes salvage value. a) TRUE b) FALSE 3- Replacement rule implies replacing the existing asset when the marginal cost of the existing asset is more than the marginal cost of the new asset. a) TRUE b) FALSE 4- Depreciation recapture occurs when the market value of an asset is greater than the book value. a) TRUE b) FALSE 5- Year 1 SV O&M 15,000 1000 12,000 1500 9.000 2 3 2000 The table above lists salve value (SV) and operating and mainteriance (O&M) cost of an asset through 3 years with the initial cost of $20,000. Given MARR is 10%, which of the statements is correct (choose the closest answer)? a) The marginal cost at year 2 is $6,000 and the annual cost (EUAC) through year two is $6,500 b) The marginal cost at year 2 is $6,000 and the annual cost (EUAC) through year two is $7,048 c) The marginal cost at year 2 is $6,500 and the annual cost (EUAC) through year two is $7,048 d) The marginal cost at…
A new machine costs $899,090 and falls in a 29.50% CCA class. The machine will have zero value after 5 years of use but will save $417,680 annually in operating costs before taxes in those five years. Assume a tax rate of 34.17%. Using a required return of 15.11%, what is the equivalent annual cost (EAC) of the machine purchase, considering the annual cash flow, initial purchase, and CCA tax shield? Options $59,682 $61,252 $62,823 $64,393 $65,964
A corporate expects to receive $36,144 each year for 15 years if a particular project is undertaken. There will be an initial investment of $100,705. The expenses associated with the project are expected to be $7,740 per year. Assume straight-line depreciation, a 15-year useful life, and no salvage value. Use a combined state and federal 48% marginal tax rate, MARR of 8%, determine the project's after-tax net present worth.
Outdoor Sports is considering adding a putt putt golf course to its facility. The course would cost $167,000, would be depreciated on a straight-line basis over its 6-year life, and would have a zero salvage value. The sales would be $84,000 a year, with variable costs of $27,400 and fixed costs of $12,000. In addition, the firm anticipates an additional $15,300 in revenue from its existing facilities if the putt putt course is added. The project will require $2,600 of net working capital, which is recoverable at the end of the project. What is the net present value of this project at a discount rate of 12 percent and a tax rate of 40 percent?

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