Your company is considering the replacing an old machine with a more efficient model. The new machine costs $39,500,will last for 7 years and save $12,900 per year in expenses. The discount rate is 18% and the tax rate is 26%. The machinewill be depreciated on a straight line basis to zero. The old machine is fully depreciated and can be sold today for $2,700.A) what is the amount of initial investment required?B) what is the after-tax gain on the sale of the old machine? The old machine is fully depreciated.C) what is the amount of operating cash flow (OCF) per year?D) what is the NPV of the project?

NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…

Answered: Your company is considering the…

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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Am. 140.
(Ignore income taxes in this problem.) Your Company has some equipment that can either be repaired right now for $50,000 or sold for $13,000 scrap value. As an alternative, Your Company could buy new equipment for $150,000. Both pieces of equipment would last 8 years. The annual operating expenses of the new equipment would be $8,500 less than the operating costs of the old machine. In addition, the new machine would be able to produce 100 more units that can be sold for a contribution margin of $65 per unit. The new equipment is expected to have a $10,000 salvage value in 8 years. Your Company discount rate is 8%. What is the net present value of the decision to buy the new equipment instead of repairing the old equipment? a $4,605 b $3,225 c $1,605 d ($ 795)
You are the owner of a small boutique. You need to decide if you should upgrade your storage and display counters. The total cost is $2,000, and the depreciation rate is 8% per year. The expected increase in next year’s revenues as a result of the investment is $400. Assuming an annual interest rate of 5%, answer the following questions: (a) What is the present value of the benefits? (b) What is the present value of the costs? (c) Should you make this investment?
Hello. Need help with the solution to question. Calculate the annual straight-line depreciation for a machine that costs $30,000 and has installation and shipping costs that total $2,000. The machine will be depreciated over a period of 15 years. The company’s marginal tax rate is 40 percent. Round your answer to the nearest dollar.
A new machine can be purchased for $1,500,000. It will cost $45,000 to ship and $55,000 to install the machine. The new machine will replace an older machine that is fully depreciated and will be sold for $125,000. The firm’s income tax rate is 40%. What is the initial outlay (IO) for the new machine? $1,525,000 $1,600,000 $1,675,000 $1,725,000
Vijay
b. Cendrawasih Inc. is considering replacing the equipment it uses to produce crayons. The equipment would cost RM1.37 million, have a 12-year life, and lower manufacturing costs by an estimated RM304,000 a year. The equipment will be depreciated using straight-line depreciation to a book value of zero. The required rate of return is 15 percent and the tax rate is 35 percent. Determine the net income from this proposed project.
One year ago, your company purchased a machine used in manufacturing for $95,000. You have learned that a new machine is available that offers many advantages and that you can purchase it for $140,000 today. The CCA rate applicable to both machines is 30%; neither machine will have any long-term salvage value. You expect that the new machine will produce earnings before interest, taxes, depreciation, and amortization (EBITDA) of $45,000 per year for the next 10 years. The current machine is expected to produce EBITDA of $20,000 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Your company's tax rate is 45%, and the opportunity cost of capital for this type of equipment is 10%. Should your company replace its year-old machine? What is the NPV of replacement? The NPV of replacement is $. (Round to the nearest dollar.)
Consider a machine purchased one year ago for $18,000. The machine is being depreciated $3,000 per year throughout a six-year period. Its current market value is $6,000, and the expected market value of the machine one year from now is $4,000. If the interest rate is 10%, the expected cost of holding the machine during the next year is $___.
A new machine costing $150,000 is expected to save the McKaig Brick Company $11,000 per year for 5 years before depreciation and taxes. The machine will be depreciated on a straight-line basis for a 5-year period to an estimated salvage value of $0. The firm’s marginal tax rate is 40 percent. What are the annual net cash flows associated with the purchase of this machine? Round your answer to the nearest dollar. $ Compute the net investment (NINV) for this project. Round your answer to the nearest dollar. $
Your firm needs a computerized machine tool lathe which costs $50,000 and requires $12,000 in maintenance for each year of its 3-year life. After three years, this machine will be replaced. The machine falls into the MACRS 3-year class life category, and neither bonus depreciation nor Section 179 expensing can be used. Assume a tax rate of 21 percent and a discount rate of 12 percent.Calculate the depreciation tax shield for this project in year 3. (Round your answer to 2 decimal places.)
A corporation is considering purchasing a machine that will save $150,000 per year before taxes. The cost of operating the machine (including maintenance) is $30,000 per year. The machine will be needed for five years, after which it will have a zero salvage value. MACRS depreciation will be used, assuming a three-year class life. The marginal income tax rate is 25%. If the firm wants 15% return on investment after taxes, how much can it afford to pay for this machine? Click the icon to view the MACRS depreciation schedules Click the icon to view the interest factors for discrete compounding when /- 15% per year. If the firm wants 15% return on investment after taxes, it can afford to pay thousand for this machine. (Round to one decimal place.)

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