CFIN -STUDENT EDITION-ACCESS >CUSTOM<
6th Edition
ISBN: 9780357752951
Author: BESLEY
Publisher: CENGAGE C
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Chapter 10, Problem 13PROB
Summary Introduction
Net present value is the difference between the present values of
Calculate the cost of
Decision rule:
EC is considering to replace an asset with new one which has cost of $37,500 and old machine has book value of $8,300. Asset is classified under three years MACRS class and can be sold after three years for 6,000. Savings from the machine is $14,300. Life of the project is 3 years, tax rate is 40% and required
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Backyard boys is considering the purchase of a new toy-making machine that will increase revenues by $50,000 a year and annual costs by $10,000. The new machine will replace an outdated machine with a current book vale of $10,000 but if scrapped now can only be sold for $6,000.The new machine will cost $100,000 with shipping and installation fees of $10,000. The machine will be depreciated via 5-year MACRS schedule (20.0%, 32.0%, 19.2%, 11.5%, 11.5%, 5.8%). The firm estimates that the new machine can be sold at the end of its five-year life for $20,000. The new machine will necessitate an investment of $30,000 in working capital that will be fully recovered at the end of the project. Tipping Toys has a 10% cost of capital and a corporate tax rate of 40%.What is the IRR of the project?14.85%
XYZ Co. is considering the purchase of a new machine.
The machine will cost $250,000 and requires
installation costs of $25,000. The existing machine can
be sold currently for $25,070. It was purchased three
years ago for $83,000 and depreciated using MACRS (5
years). It can be operated for another four years. Its
market value at that time, if sold, would be $14,000.
The new machine has expected life of five years and
expected to provide operating cash savings of $88,000
a year for 2 years and $50,000 a year for the next two
years before depreciation and taxes (EBD&T). After
four years the new machine can be sold for $12,750.
To support the increased business resulting from the
purchase of new machine, A/R will increase by $12,000;
inventory will increase by $25,000 and current liabilities
by $41,000. The cost of capital is 17% and the tax rate
is 40%.
What is NPV?
Question 9 options:
$56,900
-$65,880
-$63,118
-$76,890
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,070,000, and it would cost another $21,500 to install it. The machine falls into the
MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $696,000. The machine would require an increase in net
working capital (inventory) of $15,000. The sprayer would not change revenues, but it is expected to save the firm $405,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate
is 30%.
a. What is the Year 0 net cash flow?
b. What are the net operating cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar.
Year 1
Year 2
Year 3
c. What is the additional Year 3 cash flow (i.e, the after-tax salvage and the return of working capital)? Do not round intermediate calculations. Round your answer to the nearest…
Chapter 10 Solutions
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