EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103145947
Author: DeMarzo
Publisher: PEARSON
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Chapter 8, Problem 14P
One year ago, your company purchased a machine used in manufacturing for $110,000. You have learned that a new machine is available that offers many advantages; you can purchase it for $150,000 today. It will be
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One 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; you can purchase it for
$150,000 today. It will be depreciated on a
straight-line basis over ten years, after which it has
no salvage value. You expect that the new
machine will contribute ÉBITDA (earnings before
interest, taxes, depreciation, and amortization) of
$60,000 per year for the next ten years. The
current machine is expected to produce EBITDA of
$25,000 per year. The current machine is being
depreciated on a straight-line basis over a useful
life of 11 years, after which it will have no salvage
value, so depreciation expense for the current
machine is $10,909 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 38%, and the opportunity
cost of capital for this type of equipment is 11%.
What is the NPV of the replacement…
One year ago, your company purchased a machine used in manufacturing for $100,000. You have learned that a new machine is available that offers many advantages; you can purchase it for
$140,000 today. It will be depreciated on a straight-line basis over 10 years, after which it has no salvage value. You expect that the new machine will contribute EBITDA (earnings before interest,
taxes, depreciation, and amortization) of $45,000 per year for the next 10 years. The current machine is expected to produce EBITDA of $24,000 per year. The current machine is being
depreciated on a straight-line basis over a useful life of 11 years, after which it will have no salvage value, so depreciation expense for the current machine is $9,090.91 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 30%, and the opportunity cost of capital for this type of
equipment is 15%. Is it profitable to replace the…
One year ago, your company purchased a machine used in manufacturing for $ 105 comma 000. You have learned that a new machine is available that offers many advantages; you can purchase it for $ 170 comma 000 today. It will be depreciated on a straight-line basis over ten years, after which it has no salvage value. You expect that the new machine will contribute EBITDA (earnings before interest, taxes, depreciation, and amortization) of $ 60 comma 000 per year for the next ten years. The current machine is expected to produce EBITDA of $ 20 comma 000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, after which it will have no salvage value, so depreciation expense for the current machine is $ 9 comma 545 per year. All other expenses of the two machines are identical. The market value today of the current machine is $ 50 comma 000. Your company's tax rate is 20 %, and the opportunity cost of capital for this type of…
Chapter 8 Solutions
EBK CORPORATE FINANCE
Ch. 8.1 - How do we forecast unlevered net income?Ch. 8.1 - Prob. 2CCCh. 8.1 - Prob. 3CCCh. 8.2 - Prob. 1CCCh. 8.2 - What is the depreciation tax shield?Ch. 8.3 - Prob. 1CCCh. 8.3 - Prob. 2CCCh. 8.4 - Prob. 1CCCh. 8.4 - What is the continuation or terminal value of a...Ch. 8.5 - Prob. 1CC
Ch. 8.5 - How does scenario analysis differ from sensitivity...Ch. 8 - Pisa Pizza, a seller of frozen pizza is...Ch. 8 - Kokomochi is considering the launch of an...Ch. 8 - Home Builder Supply, a retailer in the home...Ch. 8 - Hyperion, Inc. currently sells its latest...Ch. 8 - Table 8.1 Spreadsheet HomeNets Incremental...Ch. 8 - Prob. 6PCh. 8 - Castle View Games would like to invest in a...Ch. 8 - Prob. 9PCh. 8 - Prob. 10PCh. 8 - Prob. 11PCh. 8 - A bicycle manufacturer currently produces 300,000...Ch. 8 - One year ago, your company purchased a machine...Ch. 8 - Prob. 15PCh. 8 - Markov Manufacturing recently spent 15 million to...Ch. 8 - Prob. 17PCh. 8 - Arnold Inc. is considering a proposal to...Ch. 8 - Bay Properties is considering starting a...Ch. 8 - Prob. 21PCh. 8 - Prob. 22P
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- One year ago, your company purchased a machine used in manufacturing for $110,000. You have learned that a new machine is available that offers many advantages; you can purchase it for $150,000 today. It will be depreciated on a straight-line basis over ten years, after which it has no salvage value. You expect that the new machine will contribute EBITDA (earnings before interest, taxes, depreciation, and amortization) of $40,000 per year for the next ten years. The current machine is expected to produce EBITDA of $20,000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, after which it will have no salvage value, so depreciation expense for the current machine is $10,000 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 20%, and the opportunity cost of capital for this type of equipment is 10%. Is it profitable to replace the…arrow_forwardOne year ago, your company purchased a machine used in manufacturing for $115,000. You have learned that a new machine is available that offers many advantages; you can purchase it for $160,000 today. It will be depreciated on a straight-line basis over 10 years, after which it has no salvage value. You expect that the new machine will contribute EBITDA (earnings before interest, taxes, depreciation, and amortization) of $40,000 per year for the next 10 years. The current machine is expected to produce EBITDA of $25,000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, after which it will have no salvage value, so depreciation expense for the current machine is $10,455 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 35%, and the opportunity cost of capital for this type of equipment is 12%. Is it profitable to replace the…arrow_forwardOne year ago, your company purchased a machine used in manufacturing for $90,000. You have learned that a new machine is available that offers many advantages; you can purchase it for $150,000 today. It will be depreciated on a straight-line basis over ten years, after which it has no salvage value. You expect that the new machine will contribute EBITDA (earnings before interest, taxes, depreciation, and amortization) of $35,000 per year for the next ten years. The current machine is expected to produce EBITDA of $24,000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, after which it will have no salvage value, so depreciation expense for the current machine is $8,182 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 38%, and the opportunity cost of capital for this type of equipment is 10%. Is it profitable to…arrow_forward
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