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…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 18E

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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?
Auto Detailers is buying some new equipment at a cost of $188,900. This equipment will be depreciated on a straight-line basis to a zero book value its eight-year life. The equipment is expected to generate net income of $11,000 a year for the first four years and $24,000 a year for the last four years. What is the average accounting rate of return? A) 18.09 percent B) 15.48 percent C) 18.53 percent D) 17.76 percent E) 22.68 percent
A certain company is considering the use of a concrete electric pole in the expansion of its power distribution lines. A concrete pole cost 18,000 each and will last 20 years. The company is presently using wooden poles which cost 12,000 per pole and will last 10 years. Assume annual taxes amount to 1 percent of first cost and zero salvage value in both cases. Money is worth 12 percent. 1.1. What is the amount of annual depreciation each pole? 1.2. Excluding interest on capital, what is the annual cost of the wooden pole?
6
New equipment costs $700,000 and is expected to last for four years with no salvage value. During this time the company will use a 30% CCA rate. The new equipment will save $550,000 annually before taxes. If the company's required rate of return is 15%, determine the NPV of the purchase. Assume a tax rate of 35%. $450,005 $461,112 $473,336 $485,550 $497,668
Hello. Need help with the solution to question. Calculate the annual straight-line depreciation for a machine that costs $30,000 and has installation and shipping costs that total $2,000. The machine will be depreciated over a period of 15 years. The company’s marginal tax rate is 40 percent. Round your answer to the nearest dollar.
A machine costs $50.000 and it requires $1,200 as maintenance fees for each year over its five-year life. After that, this machine has to be replaced by a new one. Assume a tax rate of 20% and a discount rate of 12%. If the machine belongs in a 30% CCA class and has no salvage value. what is the EAC,
NUBD Co. purchase a machine for P180,000, which will be depreciated on the straight-line basis over a five year period with no salvage value. The related cash flow from operations, net of income taxes, is expected to be P40,000, a year. Assume that NUBD’s effective income tax rate is 40% for all years.What is the payback period?
What is the aftertax salvage value?
4. The Scampini Supplies Company recently purchased a new delivery truck. The new truck has an after-tax cost of $22,500, and it is expected to generate after-tax cash flows, of $6,250 per year. The truck has a 5- year expected life. The expected year-end abandonment values (after-tax salvage values) for the truck are given here. The company's WACC is 10%. Year Annual After-Tax Cash Flow ($22,500) 6,250 6,250 6,250 6,250 6,250 0 1 2 3 5 After-Tax Abandonment Value $17,500 14,000 11,000 5,000 0 a. .Should the firm operate the truck until the end of its 5-year physical life; if not, what is the truck's optimal economic life? b. Would the introduction of abandonment values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project? Explain.
A company has purchased a machine at the cost of $35,000. The machine is expected to provide annual savings of $50,000 for two years and is to be depreciated by the MACRS three-year recovery period. This machine will require annual operating and maintenance costs in the amount of $15,000. The salvage value at the end of two years is expected to be $8,000. a) Assuming a marginal tax rate of 30% and MARR of 10%, what are the following for the Income Statement: Revenue,Expenses, Depreciation, Taxable Income, Taxes (30%), Net Income. What are the following for the Cash Flow Statement: Net Income, Depreciation, Capital Expenditure, Salvage Value, Gains Tax / Credit, Net After Tax Cash Flow. b) Assume MARR of 8%, calculate NPV of the project.
6. A contractor can buy dump trucks for P800,000.00 each(surplus) or rent them for P1,189 per truck per day. The truck has a salvage value of P100,000 at the end of its useful life of 5 years. Annual cost of maintenance is P20,000.00. If money is worth 14% per annum, determine the number of days per year a truck must be used to warrant the purchase of the truck. A. 200. B. 199 C. 145 D. 102

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