F2 Problem 9-24 NPV and Bonus Depreciation [LO 2]Tanaka Machine Shop is considering a four-year project to improve itsproduction efficiency. Buying a new machine press for $411,000 is estimated toresult in $152,000 in annual pretax cost savings. The press qualifies for 100percent bonus depreciation and it will have a salvage value at the end of theproject of $53,000. The press also requires an initial investment in spare partsinventory of $15,800, along with an additional $2,800 in inventory for eachsucceeding year of the project. The shop's tax rate is 23 percent and itsdiscount rate is 10 percent. Calculate the project's NPV.Note: Do not round intermediate calculations and round your answer to 2decimal places, e.g., 32.16.NPV_

To calculate the Net Present Value (NPV) of the project, we need to find the present value of all…

Answered: Problem 9-24 NPV and Bonus Depreciation…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 8PROB

See similar textbooks

Similar questions

Problem 9-16 Project Evaluation (LO2) Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap purification system for $20 million. The system will last 4 years. Do-It-Right sells a sturdier but more expensive system for $21 million, it will last for 6 years. Both systems entail $2 million in operating costs; both will be depreciated straight-line to a final value of zero over their useful lives; neither will have any salvage value at the end of its life. The firm's tax rate is 30%, and the discount rate is 13%. a. What is the equivalent annual cost of investing in the cheap system? Note: Do not round intermediate calculations. Enter your answer as a positive value. Enter your answer in millions rounded to 2 decimal places. b. What is the equivalent annual cost of investing in the more expensive system? A Note: Do not round intermediate calculations. Enter your answer as a positive value. Enter your answer in millions rounded to…
Exercise 14-6 (Algo) Simple Rate of Return Method [LO14-6] The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $57,000. The machine would replace an old piece of equipment that costs $15,000 per year to operate. The new machine would cost $7,000 per year to operate. The old machine currently in use is fully depreciated and could be sold now for a salvage value of $24,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.)
ts 19 Riverview Company is evaluating the proposed acquisition of a new production machine. The machine's base price is $200,000, and installation costs would amount to $28,000. Also, $10,000 in net working capital would be required at installation. The machine will be depreciated for 3 years using simplified straight line depreciation. The machine would save the firm $110,000 per year in operating costs. The firm is planning to keep the machine in place for 2 years. At the end of the second year, the machine will be sold for $100,000. Riverview has a cost of capital of 12% and a marginal tax rate of 34%. What is the NPV of the project? O $12.155 O $3,875 O-$9,783 O $19,016 $9.555
QUESTION 3 1 points Save Answer We are evaluating a project that costs $786,000, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 65,000 units per year. Price per unit is $48, variable cost per unit is $25, and fixed costs are $725,000 per year. The tax rate is 22 percent, and we require a return of 10 percent on this project. What is the degree of Operating leverage? O1.8.379 O 2.4.89 O 3. 12.89 O4.9.983
The management of Deitrich Inc., a civil engineering design company, is considering an investment in a high-quality blueprint printer with the following cash flows: Year 1234567890 Investment Cash Inflow $2,000 $3,000 $6,000 QUESTION 6 $28,000 $4,000 $8,000 $9,000 $8,000 $6,000 $5,000 $4,000 $4,000 I Required: 1. Determine the payback period of the investment. 2. Would the payback period be affected if the cash inflow in the last year was several times larger?
6. Problem 12.11 (Replacement Analysis) eBook St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings before depreciation from $30,000 to $54,000 per year. The new machine will cost $85,000, and it will have an estimated life of 8 years and no salvage value. The new riveting machine is eligible for 100% bonus depreciation at the time of purchase. The applicable corporate tax rate is 25%, and the firm's WACC is 12%. The old machine has been fully depreciated and has no salvage value. What is the NPV of the project? Negative value, if any, should be indicated by a minus sign. Round your answer to the nearest cent. $ Should the old riveting machine be replaced by the new one? -Select- ↑
Question 9 Daily Enterprises is purchasing a $9.6 million machine. It will cost $52,000 to transport and install the machine. The machine has a depreciable life of five years using straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.1 million per year along with incremental costs of $1.1 million per year. Daily's marginal tax rate is 21%. You are forecasting incremental free cash flows for Daily Enterprises. What are the incremental free cash flows associated with the new machine? The free cash flow for year 0 will be $nothing. (Round to the nearest dollar.) The free cash flow for years 1–5 will be $_______________________ (Round to the nearest dollar.)
Exercise 10-13A (Algo) Determining the payback period with uneven cash flows LO 10-4 Baird Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual basis during its first two years of operation. Thereafter, it would be leased to the general public on demand. Baird would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow: Year Year 1 Year 1 Year 2 Year 3. Year 3. Year 4 Year 5 Year 5 Nature of Item Purchase price. Revenue Revenue Revenue Major overhaul Revenue Revenue Salvage value Cash Inflow $31, 000 31, 000 26,000 17,000 15,000 7,000 Cash Outflow $79, 800 a. Payback period (accumulated cash flows) b. Payback period (average cash flows) 8, 200 Required a.&b. Determine the payback period using the accumulated and average cash flows approaches. Note: Round your answers to 1 decimal place. years years
Q. 3 The cost of a replacement packaging machine is $95,000. The machine is anticipated to reduce the packaging costs by $20 per parcel. The_purchasing company is expected to yield an output of 25,000 parcels per year. The salvage value 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%?
Problem 9 A contractor is considering the following three alternatives: a. Purchase a new microcomputer system for $15,000. The system is expected to last 6 years with salvage value of $1,000. b. Lease a new microcomputer system for $3,000 per year, payable in advance. The system should last 6 years. c. Purchase a used microcomputer system for $8,200. It is expected to last 3 with no salvage value. Use a common-multiple-of-lives approach. If MARR of 8% is used, which alternative should be selected using a discounted present worth analysis? If the MARR is 12%, which alternate should be selected? years
QUESTION 7 Massey Enterprises is planning to buy a new machine to decrease the overall cost of production. This machine will cost $50000 and will help to save the company $22000 in operating costs annually. The machine will be fully depreciated using a straight-line depreciation method to a useful life of 4 years. The actual market value of the machine is expected to be zero at the termination of the project. The marginal tax rate for the company is 21 and the discount rate for this project is 11 percent. What is the net present value of this 4-year project?
Problem 6-14 NPV and Bonus Depreciation Tanaka Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new machine press for $475,000 is estimated to result in $199,000 in annual pretax cost savings. The press qualifies for 100 percent bonus depreciation, and it will have a salvage value at the end of the project of $72,000. The press also requires an initial Investment in spare parts inventory of $38,000, along with an additional $4,000 in Inventory for each succeeding year of the project. The shop's tax rate is 23 percent and its discount rate is 10 percent. Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g. 32.16.) NPV S 618,123.75 Should the company buy and install the machine press? Yes No

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CFIN

Finance

ISBN:

9781337671743

Author:

BESLEY

Publisher:

CENGAGE LEARNING - CONSIGNMENT

EBK CFIN

Finance

ISBN:

9781337671743

Author:

BESLEY

Publisher:

CENGAGE LEARNING - CONSIGNMENT

SEE MORE TEXTBOOKS