Your firm needs a computerized machine tool lathe which costs $44,000 and requires $11,400 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 neitherbonus depreciation nor Section 179 expensing can be used. Assume a tax rate of 21 percent and a discount rate of 11 percent.If the lathe can be sold for $4,400 at the end of year 3, what is the after-tax salvage value? (Round your answer to 2 decimal places.)Salvage value after tax

The after-tax salvage value of the lathe is calculated as follows:MACRS Depreciation:Year 1:…

Answered: Your firm needs a computerized machine…

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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We must evaluate a proposal to buy a new milling machine. The purchase price of the milling machine, including shipping and installation costs, is $190,000, and the equipment will be fully depreciated at the time of purchase. The machine would be sold after 3 years for $102,000. The machine would require a $7,500 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $51,000 per year. The marginal tax rate is 25%, and the WACC is 8%. Also, the firm spent $4,500 last year investigating the feasibility of using the machine. What is the initial investment outlay for the machine for capital budgeting purposes after the 100% bonus depreciation is considered, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar.$ What are the project's annual cash flows during Years 1, 2, and 3? Do not round…
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A new delivery truck can be purchased for $30,000. The old one could be sold today for $5,000, and has a book value of $3,000. In three years, the old truck will have a salvage value of $1,000 (and no book value). The new truck would be depreciated on a 5 year MACRS schedule. The firm’s tax rate is 21%. If the old truck is sold and the new one bought, and the new truck will save the firm $1,000 a year in gas expenses, and assuming the new truck would have a salvage value of $10,000 in year 3, what is the replacement project's NPV if the firm’s WACC is 15%? (Round to the nearest dollar and do not enter a dollar sign)
Your firm needs a computerized tool lathe which cost $49000 and requires $119000 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. Assume a tax rate of 34 percent and a discount rate of 13 percent. Calculate the depreciation tax shield for this project. Work in excel
Choose the correct answer for the following question: Your company is analyzing two machines to determine which one it should purchase. Whichever machine is purchased will be replaced at the end of its useful life. The company requires a 10 percent rate of return and uses straight-line depreciation to a zero book value over the life of the machine. Machine A has a cost of $300,000, annual operating costs of $42,000, and a 5-year life. Machine B costs $265,000, has annual operating costs of $50,000, and a 4-year life. The company currently pays no taxes. Which machine should be purchased and why? (Hint: consider the equivalent annual cost-EAC of the two machines) A. Machine A; because it will save the company about $8,783 a year B. Machine A; because it will save the company about $14,670 a year C. Machine B; because it will save the company about $11,482 a year D. Machine B; because it will save the company about $9,916 a year E. Machine A; because it will save the company about…
Am. 140.
You must evaluate a proposal to buy a new milling machine. The purchase price of the milling machine, including shipping and installation costs, is $162,000, and the equipment will be fully depreciated at the time of purchase. The machine would be sold after 3 years for $111,000. The machine would require a $9,000 increase in net operating working capital (increased Inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $42,000 per year. The marginal tax rate is 25%, and the WACC is 11%. Also, the firm spent $4,500 last year investigating the feasibility of using the machine. a. How should the $4,500 spent last year be handled? 1. Last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's life. Hence, it should not be included in the initial investment outlay. II. Last year's expenditure is considered an opportunity cost and does not represent an incremental cash flow.…
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The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $970,000, and it would cost another $18,000 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $495,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $14,000. The sprayer would not change revenues, but it is expected to save the firm $366,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar.1) What is the Year-0 net cash flow? A) What are the net operating cash flows in Years 1, 2, and 3? B) What is the additional Year-3 cash flow (i.e, the after-tax…
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