A machine costs $100,000 and generates $25,000 of pre-tax operating income per year. The tax rate is 40%. The machine is in a CCA class with a 20% rate. The cost of capital is 12%. The machine is expected to last 10 years and will have no salvage value. Other assets will remain in the asset class. What is the NPV of the machine?
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- Although the Chen Company’s milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $110,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $19,000 per year. It would have zero salvage value at the end of its life. The project cost of capital is 10%, and its marginal tax rate is 25%. Should Chen buy the new machine?Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
- A machine costs $600,000 and is expected to yield an after-tax net income of $23,000 each year. Management predicts this machine has a 9-year service life and a $120,000 salvage value, and it uses straight-line depreciation. Compute this machine's accounting rate of return. Accounting Rate of Return Choose Numerator: Choose Denominator: Accounting Rate of Return Accounting rate of returnA firm is looking at a new project requiring a machine that would cost $500,000.The cost will be depreciated straightline to zero over the project's 5yr life at the end of which the machoine can be scrapped for $125,000. the tax rate = 23%. Calculate the machine's after-tax salvage value.The DDB Corporation wants to purchase a new machine for its factory operations at a cost of P 800,000. The investment is expected to generate P 400,000 in annual cash flows for a period of five years. The required rate of return is 10%. The old machine can be sold for P 75,000. The machine is expected to have zero value at the end of the five-year period. Disregard income taxes and depreciation. Compute for net present value of the investment.
- A new production system for a factory is to be purchased and installed for $135331 . This system will save approximately 300,000kWh of electric power each year for a 6-year period. Assume the cost of electricity is $0.10 per kWh , and factory MARR is 15% per year, and the salvage value of the system will be $8662 at year 6 . Using the PW method to analyzes if this investment is economically justified A- calculate the PW of the above investment and insert the result below. _______________________A 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.Your firm needs a machine which costs $210,000, and requires $36,000 in maintenance for each year of its 7 year life. After 3 years, this machine will be replaced. The machine falls into the MACRS 7-year class life category. Assume a tax rate of 40% and a discount rate of 15%. What is the depreciation tax shield for this project in year 7?
- A new production system for a factory is to be purchased and installed for $135331. This system will save approximately 300,000 kWh of electric power each year for a 6-year period. Assume the cost of electricity is $0.10 per kWh, and factory MARR is 15% per year, and the salvage value of the system will be $8662 at year 6. Using the PW method to analyzes if this investment is economically justified A- calculate the PW of the above investment and insert the result below.A machine costs $600,000 and is expected to yield an after-tax net income of $23,000 each year. Management predicts this machine has a 12-year service life and a $120,000 salvage value, and it uses straight-line depreciation. Compute this machine's accounting rate of return. Choose Numerator: 1 7 Accounting Rate of Return Choose Denominator:5. Suppose you are considering purchasing a machine or leasing one. The machine has a full economic life of 15 years, and is depreciated linearly to zero. There is no salvage value. For the same machine, you can buy it for $200,000, or lease it for $13,942 per year. Assume a tax rate of 27% and an after-tax cost of debt of 13%. Show work for all parts requiring computation. What is the after-tax lease payment (annual)? What is the depreciation tax shield (annual)? What is the incremental cash flow in absolute value (annual)? What is the net advantage to leasing? Should you lease or buy the machine? Why?