Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 21, Problem 17CQ
To determine
The expected cost of holding a machine.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
A 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.)
3-21. You can buy a machine for $100,000 that will
produce a net income, after operating expenses,
of $10,000 per year. If you plan to keep the
machine for four years, what must the market
(resale) value be at the end of four years to justify
the investment? You must make a 12% annual
return on your investment.
Give typing answer with explanation and conclusion
Chapter 21 Solutions
Economics: Private and Public Choice (MindTap Course List)
Knowledge Booster
Similar questions
- What should you do if you own a factory building that currently is generating a perpetual annual cash flow of $60 and your discount rate is 5%. The building has been fully depreciated. You can keep the building. You can sell the building for $1,100. You can spend $300 to renovate the building to increase the annual cash flow by an extra $20 a year. You can ignore taxes.arrow_forward5.arrow_forwardJ&M Manufacturing plans on purchasing a new assembly machine for $30,000 to automate one of its current manufacturing operations. It will cost an additional $5,500 to have the new machine installed. With the new machine, J&M expects to save $11,000 in annual operating and maintenance costs. The machine will last five years with an expected salvage value of $6,000. a. How long will it take to recover the investment (plus installation cost)? The payback period is _______years. (Round up to the nearest whole number.) b. If J&M's interest rate is known to be 13%, determine the discounted payback period. The discounted payback period is _______years. (Round up to the nearest whole number.)arrow_forward
- Gluon Inc. is considering the purchase of a new high pressure glueball. It can purchase the glueball for $70,000 and sell its old low- pressure glueball, which is fully depreciated, for $12,000. The new equipment has a 10-year useful life and will save $16,000 a year in expenses. The opportunity cost of capital is 9%, and the firm's tax rate is 21%. What is the equivalent annual saving from the purchase if Gluon can depreciate 100% of the investment immediately. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Equivalent annual savingsarrow_forwardMacmillan Learning Investment - End of Chapter Problem In your first year of work you deposit $1,200 in your retirement account at an 8% interest rate. Calculate how much your investment is worth after each of the given time periods. Round your answers to the nearest dollar. 5 years: $ 20 years: $ 40 years: $ 1763 4320 Incorrect 8640 Incorrect 10 years: $ 30 years: $ 50 years: $ 2160 Incorrect 6480 Incorrect 10800 Incorrectarrow_forwardJ&M Manufacturing plans on purchasing a new assembly machine for $32,000 to automate one of its current manufacturing operations. It will cost an additional $3,500 to have the new machine installed. With the new machine, J&M expects to save $ 12,000 in annual operating and maintenance costs. The machine will last five years with an expected salvage value of $5,000. a. How long will it take to recover the investment (plus installation cost)? b. If J&M's interest rate is known to be 17%, determine the discounted payback period.arrow_forward
- After Hurricane Katrina there was a need to replace outdated hydraulic flood control pumps in New Orleans. These old pumps are powered by pressurized oil and they can be replaced by a newer and more expensive type of pump that utilizes an up-to- date drive design having solid drive shafts instead of pressurized oil. Should the shafts by replaced? Based on the problem above, what would you consider as your factors for replacing an existing asset? Write your answers in the space provided below.arrow_forwardThe last box please.arrow_forwardWithin its first three years, the 2012 Chevy Volt fell in value 62 percent to $12,997 in 2015. And a 2012 Nissan Leaf fell in value 66 percent to $10,220. That’s −22 percent a year, whereas the typical gasoline car depreciates −24, −15, and −12 percent its first three years (51 percent) for a −17 percent average per year. Indeed, at the extreme, a Honda Accord is worth fully 64 percent after three years (−12 percent average per year). Clearly, the steep decline in gasoline prices in 2014 contributed to electric-powered vehicles depreciating recently much faster than gasoline powered vehicles. But hybrid-electric vehicles such as the Nissan Leaf and Chevy Volt and all-electric vehicles such as the Chevy Bolt face another problem as well? 1.) What life cycle cost concept begins raising concerns by year 5 with any electric vehicle (EV)? If that issue affected resale value at year 5, would that affect perceived value-in-use? How exactly?arrow_forward
- Problem 9.3 The General Service Contractor Company paid $400,000 for a house and lot. The value of the land was appraised at $155,000 and the value of the house at $245,000. The house was then torn down at an additional cost of $15,000 so that a warehouse could be built on the combined lots at a cost of $1,250,000.What is the value of the property with the warehouse? For depreciation purposes, what is the cost basis for the warehouse?arrow_forwardBarbara Thompson is considering the purchase of a piece of business rental property containing stores and offices at a cost of $350,000. Barbara estimates that annual receipts from rentals will be $55,000 and that annual disbursements. other than income taxes, will be about $18,000. The property is expected to appreciate at the annual rate of 5%. Barbara expects to retain the property for 20 years once it is acquired. Then it will be depreciated on the basis of the 39-year real-property class (MACRS), assuming that the property would be placed in service on January 1. Barbara's marginal tax rate is 30%, and her MARR is 10%. What would be the minimum annual total of rental receipts that would make the investment break even?arrow_forwardNodhead College needs a new computer. It can either buy it for $295,000 or lease it from Compulease. The lease terms require Nodhead to make six annual payments (prepaid) of $71,000. Nodhead pays no tax. Compulease pays tax at 35%. Compulease can depreciate the computer for tax purposes straight-line over five years. The computer will have no residual value at the end of year 5. The interest rate is 6%. a. What is the NPV of the lease for Nodhead College? b. What is the NPV for Compulease?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Microeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506893Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
Microeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning