15. A company purchases a piece of equipment for$15,000. After nine years, the salvage value is $900.The annual insurance cost is 5% of the purchase price,the electricity cost is $600/yr, and the maintenance andreplacement parts cost is $120/yr. The effective annualinterest rate is 10%. Neglecting taxes, what is mostnearly the present worth of the equipment if it isexpected to save the company $4500 per year?(A) $2300(B) $2800(C) $3200(D) $3500

Present worth or the current worth of the investment can be find by using PVIFA and PVIF factor…

Answered: 15. A company purchases a piece of…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Sauer Food Company has decided to buy a new computer system with an expected life of three years. The cost is $430,000. The company can borrow $430,000 for three years at 13 percent annual interest or for one year at 11 percent annual interest. Assume interest is paid in full at the end of each year. a. How much would Sauer Food Company save in interest over the three-year life of the computer system if the one-year loan is utilized and the loan is rolled over (reborrowed) each year at the same 11 percent rate? Compare this to the 13 percent three- year loan. 11 percent loan 13 percent loan Interest savings Interest b. What if interest rates on the 11 percent loan go up to 16 percent in year 2 and 19 percent in year 3? What would be the total interest cost compared to the 13 percent, three-year loan? Fixed-rate 13% loan Variable-rate loan Additional interest cost Interest
A construction company can purchase a used backhoe for $90,000 and spend $450 per day in operating costs. The equipment will have a 5 -year life then sell it at salvage for $3,000. Alternatively, the company can lease the equipment for $800 per day. How many days per year must the company use the equipment in order to justify its purchase at an interest rate of 6% per year.
Consider a machine purchased one year ago for $18,000. The machine is being depreciated $3,000 per year throughout a six-year period. Its current market value is $6,000, and the expected market value of the machine one year from now is $4,000. If the interest rate is 10%, the expected cost of holding the machine during the next year is $___.
If a chemical olant is paying 43% in income taxes and wants to purchase a ball mill designed to last for 20 years at a cost of $76,000, with no salvage value. Annual income generated will be $24,000 and annual expenditures will be $13,000. Using single line depreciation and a 10% interest rate, what is the 20 year after-tax present worth of the project?
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mani.5
3. Suppose that the new equipment has a cost basis of $12,000 and a salvage value of $3,000 at the end of 6 years. This asset is depreciated by the Straight-Line method. The effective income tax rate is 40 % and the after-tax MARR ic = 10%. If the company is going to sell this asset after 3 years at the market value of $6,000, what is the minimum profit per year this asset should produce to breakeven the investment? (20%)
A company is considering purchasing a new piece of machinery at a cost $60,000. It is expected to generate revenues of $20,000 per year for 4 years against $3,000 of annual operating expenses. The machinery is MACRS 3-year property. The income tax rate is 25%. MARR is 10%. What is the EVA for year 3?
Sauer Food Company has decided to buy a new computer system with an expected life of three years. The cost is $290,000. The company can borrow $290,000 for three years at 11 percent annual interest or for one year at 9 percent annual interest. Assume interest is paid in full at the end of each year. a. How much would Sauer Food Company save in interest over the three-year life of the computer system if the one-year loan is utilized and the loan is rolled over (reborrowed) each year at the same 9 percent rate? Compare this to the 11 percent three-year loan. 9 percent loan 11 percent loan Interest savings Interest b. What if interest rates on the 9 percent loan go up to 14 percent in year 2 and 17 percent in year 3? What would be the total interest cost compared to the 11 percent, three-year loan? Fixed-rate 11% loan Variable-rate loan Additional interest cost Interest
17.
You want to buy a new plant with a price of Rs. 400,000. The borrowing cost is 10% interest rate to be paid at the end of each year. If it is purchased, the maintenance fee is Rs.10,000 per year paid at the end of each year. The depreciation falls in the MACRS 5-year class, rates are 30%, 20%, 10%, and 09%. The tax is 40%. Alternatively, the plant can be taken on lease for Rs. 85,000 upon delivery with 4 more annual rentals of Rs. 85,000 to be made at the end. This alternative includes maintenance requirement. After 04 years the asset’s salvage value is expected to be Rs. 20, 000. Required: What do you suggest should the plant be leased or purchased? Why?
If the depreciation tax shield is 40,000 due to tax rate declaration of 20%, what is the price of the machine if it has an expected life of 20 years and the money is worth 13% compounded annually? 1. Depreciation: (4 decimal places only) 2. Price: (3 decimal places)

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