1. A chemical plant is considering purchasing a computerized control system. The initial cost is $200,000, and the system will produce net savings of $100,000 per year. If purchased, the system will be depreciated under MACRS as a five-year recovery property. The system will be used for four years, at the end of which time the firm expects to sell it for $30,000. The firm's marginal tax rate on this investment is 28%. Any capital gains will be taxed at the same income tax rate. The firm is considering purchasing the computer control system either through its retained earnings or through borrowing from a local bank. Two commercial banks are willing to lend the $200,000 at an interest rate of 10%, but each requires different repayment plans (See Table below). Bank A requires four equal annual payments with interest calculated separately based on the unpaid balance prior to each payment. Bank B offers a traditional installment payment plan with five equal annual payments (interest + principal = equal payment). End of Year 1 234 Repayment Plan of Bank A Principal $50,000 $50,000 $50,000 $50,000 Interest $20,000 $15,000 $10,000 $5,000 Repayment Plan of Bank B End of Year Principal Interest Total $32,759 $20,000 $52,759 4 2345 $36,035 $16,724 $52,759 $39,638 $13,121 $52,759 $43,602 $9,157 $52,759 $47,963 $4,796 $52,759 a. Determine the cash flows inf the computer control system is to be bought through its retained earnings (100% equity financing) b. Determine the cash flows if the asset is financed entirely through Bank A (100% debt financing) C. Determine the cash flows if the asset is financed entirely through Bank B (100% debt financing)

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.

Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?

Your company is considering a new computer system that will initially cost $1 million. It will save $400,000 a year in inventory and receivables management costs. The system is expected to last for five years and will be depreciated using 3-year MACRS. The system is expected to have a salvage value of $50,000 at the end of year 5. The project will require an initial $20,000 investment in net working capital and the marginal tax rate is 40%. The required return is 8%. 0 OCF NCS NWC CFFA Year 1 $373,320 - $1,000,000 $ 20,000 - $1,020,000 $373,320 - Answer: What is the correct vaule for blank ? 2 ($) ($ @ ) 3 4 5 $299,280 $269,640 $ 240,000 ($ @ ) ($ @ ) ($ ® ) With all this, the NPV of the project is ($). Therefore, this project should be accepted. $299,280 $269,640

1. Your company is considering a new computer system initially costing $1.25 million. It will save $400,000 per year in inventory and receivables management costs. The system is expected to last for five years and will be depreciated using 3-year MACRS. The system is expected to have a salvage value of $25,000 at the end of year 5. There is no impact on net working capital. The marginal tax rate is 21 %. The required return is 9%. Calculate the NPV and IRR for the project.

XYZ is considering buying a new, high efficiency interception system. The new system would be purchased today for $47,700.00. It would be depreciated straight-line to SO over 2 years. In 2 years, the system would be sold for an after-tax cash flow of $14,600.00. Without the system, costs are expected to be $100,000.00 in 1 year and $100,000.00 in 2 years. With the system, costs are expected to be $79,000.00 in 1 year and $69,700.00 in 2 years. If the tax rate is 46.50% and the cost of capital is 8.40%, what is the net present value of the new interception system project? a. $11893.11 (plus or minus $50) b. $12724.27 (plus or minus $50) c. $8553.76 (plus or minus $50) d. $9953.14 (plus or minus $50) e. None of the above is within $50 of the correct answer

Genesis Corporation want to purchase a piece of machinery for $150,000 that will cost $20,000 to have it delivered and installed. Based on past information, they believe they can sell the machinery for $25,000 in 5 years. The company’s marginal tax rate is 34%. If the applicable CCA rate is 20% and the required return on this project is 15%, what is the present value of the CCA tax shield?

b) You purchase equipment for $50,000 and it costs $5,000 to have it delivered and installed. Based on past information, you believe that you can sell the equipment for $8,500 when you are done with it in 3 years. The company's marginal tax rate is 20%. If the applicable CCA rate is 10% and the required return on this project is 5%, what is the present value of the CCA tax shield by using the formula (10 Marks) IdTc 1+0.5r 1 PV tax shield on CCA Hea d+r 1+r d+r (1 + r)" redictions: On Ps video DELL

River Corporation wants to purchase a new machine for its plant. The new machine is expected to generate annual after tax cash savings of $300,000 for four years. The machine will have no residual value at the end of its useful life. The company has a required rate of return of 12% and a tax rate of 35%. What is the maximum dollar amount River Corporation would be willing to spend for the new machine? Round your answer to the nearest dollar. a. $300,000 b. $336,000 c. $592,283 d. $911,205 e. $683,404 f. $599,084 g. $672,014 h. None of the above 4.

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 /- 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.)