Fundamentals of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
9th Edition
ISBN: 9781259722615
Author: Richard A Brealey, Stewart C Myers, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 9, Problem 22QP
Summary Introduction
To determine: After tax salvage value.
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What is the annual net cash flow?
Outback is purchasing a new machine that will cost $98,000. The machine will qualify as MACRS 5-year property but
has an economic life of 8 years. The new machine is expected to increase revenues by $35,000 per year, and
operating costs are expected to increase by $15,000 per year. If the firm's marginal tax rate is 34 percent and the first
year's depreciation rate is 20 percent, what is the net cash flow in the first year.
a.
$7,984
b.
$26,034
c.
$19,864
d.
$264
Get the Correct option with calculation and explanation
Chapter 9 Solutions
Fundamentals of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 9 - Prob. 1QPCh. 9 - Prob. 2QPCh. 9 - Prob. 3QPCh. 9 - Prob. 4QPCh. 9 - Prob. 5QPCh. 9 - Prob. 6QPCh. 9 - Prob. 7QPCh. 9 - Prob. 8QPCh. 9 - Prob. 10QPCh. 9 - Prob. 12QP
Ch. 9 - Prob. 13QPCh. 9 - Prob. 14QPCh. 9 - Prob. 15QPCh. 9 - Prob. 17QPCh. 9 - Prob. 20QPCh. 9 - Prob. 21QPCh. 9 - Prob. 22QPCh. 9 - Prob. 23QPCh. 9 - Prob. 24QPCh. 9 - Prob. 25QPCh. 9 - Prob. 26QPCh. 9 - Prob. 27QPCh. 9 - Prob. 28QPCh. 9 - Prob. 29QPCh. 9 - Prob. 30QPCh. 9 - Prob. 32QPCh. 9 - Prob. 34QP
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- Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?arrow_forwardMason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?arrow_forward5. Does your company want to purchase this machine that will provide cost savings of $100,000 annually for its useful life (8 years)? The cost is $250,000; tax rate is 36% and discount rate is 14%. Compute straight-line depreciation for 8 years with zero salvage value. Calculate the cash flows and determine the NPV and IRR. Does your company want to buy this machine?arrow_forward
- (Ignore income taxes in this problem.) Your Company purchased a machine with an estimated useful life of 7 years. The machine will generate cash inflows of $96,000 each year. The salvage value at the end of the project is $80,000. Your Company's discount rate is 10%. The net present value of the investment is ($5,000). What is the purchase price of the machine? Group of answer choices $508,368 $513,368 $503,368 $502,368arrow_forward. A company is considering the purchase of a new printer. It can purchase the printer for $900 and sell its current printer for $300 today. The new printer will last for 6 years and save $200 a year in expenses. The opportunity cost of capital is 15%, and the firm's tax rate is 40%. If the firm uses straight line-depreciation to a salvage value of zero over a six year life, what are project’s cash flows and NPV? Should the company purchase the new printer?arrow_forwardWilson Corp, is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $50,000. The equipment will have an initial cost of $600,000 and have an 8-year life. The salvage value of the equipment is estimated to be $100,000. If the hurdle rate is 10%, what is the approximate net present value? (Future Value of $1. Present Value of $1. Future Value Annuity of $1. Present Value Annuity of $1.) (Use appropriate factor from the PV tables. Round your final answer to the nearest dollar amount.) Multiple Choice $500,000 $46,826 $100,000 Less than zeroarrow_forward
- Homer Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $164,800. The equipment will have an initial cost of $515,000 and have a 5-year life. If the salvage value of the equipment is estimated to be $11,000, what is the annual net cash flow? Multiple Choice $153,800 $64,000 $265,600 $175,800arrow_forwardNelson Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $105,000. The equipment will have an initial cost of $420,000 and have a 5 year life. If the salvage value of the equipment is estimated to be $80,000, what is the payback period? Ignore income taxes. Multiple Choice 3.24 years 4.00 years 4.76 years 7.00 yearsarrow_forwardAccountarrow_forward
- a company can buy a machine that is expected to have a three-year life and a 30,000 salvage value. the machine will cost 1,80,00 and is expected to produce a 200,000 after-tax net income to be received at the end of each year. what is the net present value of the cash flows from the investment, discounted at 12%? Choices 118,855 705,391 583,676 1,918,855 629,788arrow_forwardA new machine costing $100,000 is expected to save the McKaig Brick Company $15,000 per year for 12 years before depreciation and taxes. The machine will be depreciated as a 7-year class MACRS asset. The firm's marginal tax rate is 40 percent. What are the annual net cash flows associated with the purchase of this machine? Also compute the net investment (NINV) for this project.arrow_forwardPalmer Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $164,900. The equipment will have an initial cost of $485,000 and have a 7 year life. If the salvage value of the equipment is estimated to be $9,000, what is the accounting rate of return? Multiple Choice 34.00% 23.28% 156.37% 51.11%arrow_forward
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