Your facility is undergoing a major expansion, which will require significant capital investment into new machinery. The total cost of the machinery will be $7.2 Million, and they will be purchased outright immediately. This machinery is considered a 7-year MACRS asset. However, you expect to use it for only six years before selling it for $1.5 Million. What is the unrecovered MACRS depreciation (i.e. remaining book value) of this machinery at the time of sale at the end of year 6? a. $5,914,800 b. $964,080 c. $1,017,450 d. $1,285,200

Your facility is undergoing a major expansion, which will require significant capital investment into new machinery. The total cost of the machinery will be $7.2 Million, and they will be purchased outright immediately. This machinery is considered a 7-year MACRS asset. However, you expect to use it for only six years before selling it for $1.5 Million. What is the unrecovered MACRS depreciation (i.e. remaining book value) of this machinery at the time of sale at the end of year 6? a. $5,914,800 b. $964,080 c. $1,017,450 d. $1,285,200

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 17P

See similar textbooks

Similar questions

Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
Your facility is undergoing a major expansion, which will require significant capitalinvestment into new machinery. The total cost of the machinery will be $7.2 Million, and theywill be purchased outright immediately. This machinery is considered a 7-year MACRSasset. However, you expect to use it for only six years before selling it for $1.5 Million. How much should the company deduct from their taxable income for depreciation expensesin year 3 for this machinery?a. $1,259,280b. $996,930c. $1,028,571d. $1,200,000
You are evaluating the proposed acquisition of a new crane. Its basic price is $150,000 and will cost another $30,000 to modify it for use by your firm. It falls into the MACRS 3 depreciation class, with applicable rates or 33%, 45%, 15%, and 7% annually. Your company plans to sell it after 3 years for $70,000. If your firm acquires the equipment, it will also have to increase its net operating working capital (for spare parts) by $6,000 per year. The equipment is not expected to increase revenues directly, but is expected to save the company $30,000 per year in before tax costs. The firm's tax rate is 40%. (a) What is the company's net investment if it acquires the earth mover? (b) What are the operating cash flows for years 1, 2, and 3? (c) What is the terminal cash flow? (d) If the project's cost of capital is 10%, should the crane be purchased?
Guelph Inc. would like you to assess the after-tax viability of a new machine using annual worth analysis. The machine costs $1,000,000 and are expected to save the company $175,000/y for the next 15 years. Guelph Inc. plans to sell the machine at the end of 15 years. The estimated salvage value of the machine at the end of its life is unknown, but Guelph Inc. suspects its depreciation will be similar to the CCA rate for the machine: 20%. Should Guelph Inc. invest in the machine, assuming they use an annual MARR of 10% and their corporate tax rate is 30%?
Blossom Company is considering the purchase of a new machine. The invoice price of the machine is $151,000, freight charges are estimated to be $4,000, and installation costs are expected to be $6,000. The salvage value of the new equipment is expected to be zero after a useful life of 5 years. The company could retain the existing equipment and use it for an additional 5 years if it doesn't purchase the new machine. At that time, the equipment's salvage value would be zero. If Blossom purchases the new machine now, it would have to scrap the existing machine. Blossom's accountant, Donna Clark, has accumulated the following data for annual sales and expenses, with and without the new machine: 1. 2. 3. Without the new machine, Blossom can sell 13,000 units of product annually at a per-unit selling price of $100. If it purchases the new machine, the number of units produced and sold would increase by 10%, and the selling price would remain the same. The new machine is faster than the old…
Louie's Leisure Products is considering a 4-year project which will require the purchase of $1.2 million in new equipment. The project will use existing land for a warehouse. The market value of the land is $1 million and is expected to remain unchanged in the future. The equipment will be depreciated straight-line to a book value of $0.2 million over the 4-year life of the project. Louie's expects to sell the equipment at the end of the project for 25% of its original cost. Annual sales from this project are estimated at $1.2 million. The operating cost is 25% of the sales revenue. Net working capital equal to 20% of sales will be required to support the project. The firm desires a 10% rate of return on this project. The tax rate is 40%. Should Louie's Leisure Products accept the project?
Zhang Company is considering the purchase of a new machine. Its invoice price is $200,000, freightcharges are estimated to be $4,000, and installation costs are expected to be $6,000. Salvage value ofthe new machine is expected to be zero after a useful life of 4 years. Existing equipment could beretained and used for an additional 4 years if the new machine is not purchased. At that time, thesalvage value of the equipment would be zero. If the new machine is purchased now, the existingmachine would be scrapped. Zhang’s accountant, Victor Wang, has accumulated the following dataregarding annual sales and expenses with and without the new machine.Without the new machine, Zhang can sell 10,000 units of product annually at a per unit selling price of$100. If the new unit is purchased, the number of units produced and sold would increase by 25%, andthe selling price would remain the same.The new machine is faster than the old machine, and it is more efficient in its usage of materials.…
Aurora is considering the purchase of a new machine. Its invoice price is $250,000, freight charges are estimated to be $9,000, and installation costs are expected to be $6,000. Salvage value of the new machine is expected to be zero after a useful life of 4 years. Existing equipment could be retained and used for an additional 4 years if the new machine is not purchased. At that time, the salvage value of the equipment would be zero. If the new machine is purchased now, the existing machine would be scrapped. Aurora’s accountant, has accumulated the following data regarding annual sales and expenses with and without the new machine. Without the new machine, Aurora can sell 12,000 units of product annually at a per unit selling price of $80. If the new unit is purchased, the number of units produced and sold would increase by 25%, and the selling price would remain the same. The new machine is faster than the old machine, and it is more efficient in its usage of materials. With the old…
Aurora is considering the purchase of a new machine. Its invoice price is $250,000, freight charges are estimated to be $9,000, and installation costs are expected to be $6,000. Salvage value of the new machine is expected to be zero after a useful life of 4 years. Existing equipment could be retained and used for an additional 4 years if the new machine is not purchased. At that time, the salvage value of the equipment would be zero. If the new machine is purchased now, the existing machine would be scrapped. Aurora’s accountant, has accumulated the following data regarding annual sales and expenses with and without the new machine. Without the new machine, Aurora can sell 12,000 units of product annually at a per unit selling price of $80. If the new unit is purchased, the number of units produced and sold would increase by 25%, and the selling price would remain the same. The new machine is faster than the old machine, and it is more efficient in its usage of materials. With the old…
Your plant manager wants you to buy a new lathe for $410000. The lathe should be useful to your company for 8 years at which point you plan to replace. The estimated salvage value at the end of the useful life is $20000. Using straight line depreciation what is the Book value when the asset is sold?
The Cliney Co. is considering investing $40,000 in a piece of new equipment. If the project is accepted, it would generate cash revenues of $15,000 per year and cash costs of $5,000 per year for the next 10 years. The equipment is expected to be sold for $8,000 at the end of year 10. Assume Cliney uses straight-line depreciation to compute depreciation expense for all purposes. What is the net cash inflow in year 10? Assume Cliney has a 35% tax rate. a. $6,800 b. $8,000 c. $10,000 d. $15,000 e. None of the above
A machine now in use, which was bought five years ago for $4,000, has been fully depreciated. It can be sold for $2,500 but could be used for three more years (remaining useful life), at the end of which time it would have no salvage value. The annual operating and maintenance costs for the old machine amount to $10,000. If you decide to retain the old machine for now, what will be the opportunity cost for gains taxed at 25%?