Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Question
Chapter 15, Problem 3P
a:
To determine
Calculate the annual worth of equity financing.
b:
To determine
Calculate the annual worth of debt financing.
c:
To determine
Select the best course of action.
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A firm is considering purchasing a machine that costs $76,000. It will be used for six years, and the salvage value at
that time is expected to be zero. The machine will save $42,000 per year in labor, but it will incur $16,000 in operating
and maintenance costs each year. The machine will be depreciated according to five-year MACRS. The firm's tax
rate is 35%, and its after-tax MARR is 17%. Should the machine be purchased?
Click the icon to view the MACRS depreciation schedules.
Click the icon to view the interest factors for discrete compounding when / = 17% per year.
The present worth of the project is $. (Round to the nearest dollar.)
Your firm is contemplating the purchase of a new $540,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $50,000 at the end of that time. You will save $275,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $70,000 (this is a one-time reduction). If the tax rate is 35 percent, what is the IRR for this project?
An automobile-manufacturing company is considering purchasing an industrial robot to
do spot welding, which is currently done by skilled labor. The initial cost of the robot is
$210,000, and the annual labor savings are projected to be $150,000. If purchased, the
robot will be depreciated under the double-declining balance method during a six-year
depreciable life period. The robot will be used for seven years, at the end of which time,
the firm expects to sell it for $60,000. The company's marginal tax rate is 35% over the
project period. Determine the net after-tax cash flows for each period over the project life.
Assume MARR = 15%.
Chapter 15 Solutions
Contemporary Engineering Economics (6th Edition)
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- Your company has an opportunity to invest in a project that is expected to result in after-tax cash flows of $13,000 the first year, $15,000 the second year, $18,000 the third year, -$8,000 the fourth year, $25,000 the fifth year, $31,000 the sixth year, $34,000 the seventh year, and -$6,000 the eighth year. The project would cost the firm $67,100. If the firm's cost of capital is 12%, what is the modified internal rate of return?arrow_forwardOne year ago, your company purchased a machine used in manufacturing for $120,000. You have learned that a new machine is available that offers many advantages and that you can purchase it for $160,000 today. The CCA rate applicable to both machines is 40%; 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 $40,000 per year for the next ten years. The current machine is expected to produce EBITDA of $23,000 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 12%. What is the NPV of replacement? Should your company replace its year-old machine? //posted before but got wrong answerarrow_forwardA 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 i = 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.)arrow_forward
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