Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 14, Problem 41P
To determine
Calculate the net cash flow.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
A stamping machine is classified as seven-year MACRS property. The costbasis for the machine is $120,000, and the expected salvage value is $10,000 at the end of 12 years. Compute the book value at the end of three years for tax purposes.
B2B Co. is considering the purchase of equipment that would allow the company to add a new product to its
line. The equipment is expected to cost $240,000 with a 12-year life and no salvage value. It will be
depreciated on a straight-line basis. The company expects to sell 96,000 units of the equipment's product
each year. The expected annual income related to this equipment follows.
Sales
$ 150,000
Costs
Materials, labor, and overhead (except depreciation on new equipment)
Depreciation on new equipment
Selling and administrative expenses
80,000
20,000
15,000
Total costs and expenses
115,000
Pretax income
35,000
10,500
Income taxes (30%)
Net income
$24,500
1. Compute the payback period.
Payback Period
Choose
Denominator:
Payback
Period
Choose Numerator:
Payback
period
II
A machine has a first cost of $50,000. Its market value declines
by 20% annually. The operating and maintenance costs start
at $3,500 per year and climb by $2,000 per year. The firm's
MARR is 10%.
Find the minimum EUAC for this machine and its economic
service life.
Chapter 14 Solutions
Contemporary Engineering Economics (6th Edition)
Ch. 14 - Prob. 1PCh. 14 - Prob. 2PCh. 14 - Prob. 3PCh. 14 - Prob. 4PCh. 14 - Prob. 5PCh. 14 - Prob. 6PCh. 14 - Prob. 7PCh. 14 - Prob. 8PCh. 14 - Prob. 9PCh. 14 - Prob. 10P
Ch. 14 - Prob. 11PCh. 14 - Prob. 12PCh. 14 - Prob. 13PCh. 14 - Prob. 14PCh. 14 - Prob. 15PCh. 14 - Prob. 16PCh. 14 - Prob. 17PCh. 14 - Prob. 18PCh. 14 - Prob. 19PCh. 14 - Prob. 20PCh. 14 - Prob. 21PCh. 14 - Prob. 22PCh. 14 - Prob. 23PCh. 14 - Prob. 24PCh. 14 - Prob. 25PCh. 14 - Prob. 26PCh. 14 - Prob. 27PCh. 14 - Prob. 28PCh. 14 - Prob. 29PCh. 14 - Prob. 30PCh. 14 - Prob. 31PCh. 14 - Prob. 32PCh. 14 - Prob. 33PCh. 14 - Prob. 34PCh. 14 - Prob. 35PCh. 14 - Prob. 36PCh. 14 - Prob. 37PCh. 14 - Prob. 38PCh. 14 - Prob. 39PCh. 14 - Prob. 40PCh. 14 - Prob. 41PCh. 14 - Prob. 42PCh. 14 - Prob. 43PCh. 14 - Prob. 44PCh. 14 - Prob. 45PCh. 14 - Prob. 46PCh. 14 - Prob. 47PCh. 14 - Prob. 48PCh. 14 - Prob. 49PCh. 14 - Prob. 1STCh. 14 - Prob. 2STCh. 14 - Prob. 3ST
Knowledge Booster
Similar questions
- The Smith and Jones Research and Development firm has bought a new laboratory equipment (MACRS-GDS 3-year property class) to be used in a research project that will last 3 years. The cost of equipment is $750,000 but require bringing a technician to install the equipment and train the personal with an additional cost of $75,000. The equipment’s supplier will buy back the equipment at the end of the project for $50,000. The O&M costs per year incurred by the equipment are $70,000. The firm signed a contract with the DOD that states that they will receive a one lump-sum of $Y at the end of the life of the research project that will generate a rate of return of 8%. The firm will finance the equipment with a loan at 6% interest rate per year, and considering that the firm will not generate any revenue until the end of year 3, the bank has agreed that principal and accrued interests will be paid at the end of year three. Perform an ATCF analysis to determine the value of Y$ that will…arrow_forwardYour company is contemplating the purchase of a large stamping machine. The machine will cost $180,000. With additional transportation and installation costs of $5,000 and $10,000, respectively, the cost basis for depreciation purposes is $195,000. Its MV at the end of five years is estimated as $40,000. The IRS has assured you that this machine will fall under a three-year MACRS class life category. The justifications for this machine include $40,000 savings per year in labor and $30,000 savings per year in reduced materials. The before-tax MARR is 20% per year, and the effective income tax rate is 40%. Use this information to solve, The taxable income for year three is most nearly (a) $5,010 (b) $16,450 (c) $28,880 (d) $41,120 (e) $70,000.arrow_forwardAt times firms will need to decide if they want to continue to use their current equipment or replace the equipment with newer equipment. The company will need to do replacement analysis to determine which option is the best financial decision for the company. Price Co. is considering replacing an existing piece of equipment. The project involves the following: • The new equipment will have a cost of $2,400,000, and it is eligible for 100% bonus depreciation so it will be fully depreciated at t = 0. • The old machine was purchased before the new tax law, so it is being depreciated on a straight-line basis. It has a book value of $200,000 (at year 0) and four more years of depreciation left ($50,000 per year). • The new equipment will have a salvage value of $0 at the end of the project's life (year 6). The old machine has a current salvage value (at year 0) of $300,000. • Replacing the old machine will require an investment in net operating working capital (NOWC) of…arrow_forward
- Blue Inc. is considering producing a short-lived fad item, which it estimates will have a project life of three years. The only fixed assets it will need to purchase is some machinery which costs $120,000, plus $10,000 to modify it for this project's use. The machinery will be depreciated using the MACRS 5-year property class schedule, and Blue estimates that the machinery could be sold at the end of the third year for $70,000. In addition to expenditures on fixed assets, this project would cause the firm's cash needs to increase by $15,000 and additional raw materials inventory will go up by $5,000, both at Time 0. It also estimates that by the end of Year 1, accounts receivable will rise by $6,000. The new product's sales revenues are expected to be $90,000 each year. Total costs excluding depreciation are estimated to be $30,000. The company's marginal tax rate is 34 percent, and the firm estimates is overall WACC to be 16.00 percent. Inflation is zero. What are the project's NPV…arrow_forwardQuestion 5.3 price is $120,000, and an additional $30,000 is required to modify the equipment for special use by the company. The truck falls into the MACRS seven-year classification (the tax life), and it will be sold after five years (the project life) for $55,000. The purchase of the truck will have no effect on revenues, but it is expected to save the firm $65,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 20%. Assume that the initial investment is to be financed by a bank loan at an interest rate of 10% payable annually. Determine the after-tax cash flows and the net present worth of the investment for this project if the firm's MARR is known to be 15%. A company considerings acquiring a new heavy-duty truck. The purchase A) $118,059 B) $133,600 C) $90,022 D) Answers A, B and C are not correctarrow_forwardA high-speed electronic assembly machine was purchased two years ago for $50,000. At the present time, it can be sold for $26,000 and replaced by a newer model having a purchase price of $37,500; or it can be kept in service for a maximum of one more year. The new assembly machine, if purchased, has a useful life of not more than two years. If the before-tax MARR is 12%, when should the old assembly machine be replaced? Use the following data table for your analysis. Challenger Defender O&M Costs $11,500 13,000 Year 0 Market Value $37,500 31,000 1 2 26,000 Click the icon to view the interest and annuity table for discrete compounding when the MARR is 12% per year. The minimum EUAC value of the challenger is $ Market Value $26,000 16,500 (Round to the nearest dollar.) O&M Costs $15,500arrow_forward
- The cost of a replacement packaging machine if $95,000. The machine is anticipated to reduce the packaging costs by $20 per parcel. The company expects to send out 25,000 parcels per year. The salvage values of the machine is anticipated to be $23,000 at the end of 10 years. What is the present worth of the machine if the after-tax MARR is 10%, the CCA rate is 20%, and the tax rate is 40%? [Enter your response in $. Round to the nearest full dollar]arrow_forwardA machine that was used for 8 years has a market value of $2500 now, which decreases by $100 each year for the next 5 years. Maintenance costs this year are $5k, and for the next 5 years they are estimated at $6k, $7k, $8k and $9k. Determine the marginal cost of extending the service for two years if the MARR is 12%. Fill the whites with the results. a) Fill the whites: The loss of value in the market in year 2 is $ The loss in interest in the year 2 $ . The Marginal Cost in year 2 is $ b) If the minimum EUAC of the machine is $5500, when should the machine be replaced? Anus . (0,1,2,3,4 or 5)arrow_forwardA company has decided to buy a machine for $50,000. It will depreciate the machine on a straight-line basis over its useful life of five years. The tax rate of the company is 40% and the proper discount rate 10%. The following tables gives the resale value, S of the machine and its pretax revenue, E. The company has the option to keep or sell the machine at any time. What is the optimal time to replace the machine?arrow_forward
- its practice question Please give me the correct answer and show me the workarrow_forwardA new barcode reading device has an installed cost basis of $22,100 and an estimated service life of eleven years. It will have a zero salvage value at that time. The 200% declining balance method is used to depreciate this asset a. What will the depreciation charge be in year eleven? b. What is the book value at the end of year ten? c )What is the gain (or loss) on the disposal of the device if it is sold for $2,800 after ten years?arrow_forwardEconomic Life Exercises 1. A machine costs $ 10,000 and is expected to be scrapped for $ 1,500 in the moment he retires. Operating expenses for the first year are expected to be $ 3,500 and increasing by $ 400 as a result of the impairment; and operating income Estimated $ 20,000 If the MARR is 15%, determine the economic life of the machine.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning