20-10A (Ne project analyss) Raymobile Morors is considering the purchase of a new produccon machine for $500,000. The purchase of this machine will result in an increase in earningbefore interest and taxes of $150,000 per year. To operate this machine properly, workers wouldhave to go through a brief training session that would cost $25,000 after tat. In addition, it wouldcost $5,000 after tax to install this machine properly. Also, because this machine is extremely effcient, its purchase would necessitate an increase in inventory of $30,000. This machine has inexpected life of 10 years, after which it will have no salvage value. Assume simplified straight linedepreciation and that this machine is being depreciated down to zero, a 34 percent marginancrate, and a required rate of return of 15 percent.a. What is the initial outlay associated with this project?6. What are the annual after-tax cash flows associated with this project for years 1 through2. What is the terminal cash flow in year 10 (what is the annual afta-tar cast: flow inIC pluscny additional cash Acws associated with termination of the project)d. Should this machine be purchased?

We are given a project considered by the company and the associated costs and benefits related to…

20-10A) (Ner project analysus) Raymobilę Morors is considering the purchase of a new produc con machine for $500,000. The purchase of this machine will result in an increase in earning before interest and taxes of $150,000 per year. To operate this machine properly, workers would have to go through a brief training session that would cost $25,000 after tat. In addition, it would cost $5,000 after tax to install this machine properly. Also, because this machine is extremely effe cient, its purchase would necessitate an increase in inventory of $30,000. This machine has an expected life of 10 years, after which it will have no salvage value. Assume simplified straight line depreciation and that this machine is being depreciated down to zero, a 34 percent margina rate, and a required rate of return of 15 percent. a. What is the initial outlay associated with this project? ^ 6. What are the annual after-tax cash flows associated with this project for years 1 through What is the terminal cash flow in year 10 (what is the annual afta-tar cash flow in IC plus any additional cash flows associated with termination of the project)? d. Should this machine be purchased?

20-10A) (Ner project analysus) Raymobilę Morors is considering the purchase of a new produc con machine for $500,000. The purchase of this machine will result in an increase in earning before interest and taxes of $150,000 per year. To operate this machine properly, workers would have to go through a brief training session that would cost $25,000 after tat. In addition, it would cost $5,000 after tax to install this machine properly. Also, because this machine is extremely effe cient, its purchase would necessitate an increase in inventory of $30,000. This machine has an expected life of 10 years, after which it will have no salvage value. Assume simplified straight line depreciation and that this machine is being depreciated down to zero, a 34 percent margina rate, and a required rate of return of 15 percent. a. What is the initial outlay associated with this project? ^ 6. What are the annual after-tax cash flows associated with this project for years 1 through What is the terminal cash flow in year 10 (what is the annual afta-tar cash flow in IC plus any additional cash flows associated with termination of the project)? d. Should this machine be purchased?

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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Beryl's Iced Tea currently rents a bottling machine for $52,000 per year, including all maintenance expenses. It is considering purchasing a machine instead and is comparing two options: a. Purchase the machine it is currently renting for $150,000. This machine will require $25,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $250,000. This machine will require $16,000 per year in ongoing maintenance expenses and will lower bottling costs by $11,000 per year. Also, $39,000 will be spent up front to train the new operators of the machine. Suppose the appropriate discount rate is 7% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the cost of the rental machine. Assume also that the machines will be depreciated via the straight-line method over seven years and that they have a 10-year life with a negligible salvage value. The marginal corporate tax rate is 20%. Should Beryl's Iced…
Your firm needs a computerized machine tool lathe which costs $50,000 and requires $12,000 in maintenance for each year of its 3-year life. After three years, this machine will be replaced. The machine falls into the MACRS 3-year class life category, and neither bonus depreciation nor Section 179 expensing can be used. Assume a tax rate of 21 percent and a discount rate of 12 percent.Calculate the depreciation tax shield for this project in year 3. (Round your answer to 2 decimal places.)
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Beryl's Iced Tea currently rents a bottling machine for $55,000 per year, including all maintenance expenses. It is considering purchasing a machine instead, and is comparing two options: a. Purchase the machine it is currently renting for $160,000. This machine will require $23,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $250,000. This machine will require $15,000 per year in ongoing maintenance expenses and will lower bottling costs by $12,000 per year. Also, $39,000 will be spent upfront training the new operators of the machine. Suppose the appropriate discount rate is 8% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the rental of the machine. Assume also that the machines will be depreciated via the straight-line method over seven years and that they have a ten-year life with a negligible salvage value. The corporate tax rate is 20%. Should Beryl's Iced Tea continue…
Colorado Cleaning has a 5-year maximum acceptable payback period. The firm is considering the purchase of a new washing machine and must choose between two alternative The first machine requires an initial investment of $25,000 and generates annual after-tax cash inflows of $6,500 for each of the next 8 years. The second machine requires an initial investment of $75,000 and provides an annual cash inflow after taxes of $9,500 for 15 years. Which machine should the firm accept? Why?
Scription Inc. has additional cash available for investment and considers replacing the old factory equipment with a new one. There are two options for Scription. One option is to purchase a new equipment from Supplier A for $100,000. Supplier A equipment has a useful life of 10 years with after-tax residual value, $5,000 and can save $60,000 annually. The other option is with Supplier B. Supplier B would charge $120,000 for a new equipment. Supplier B equipment would generate $50,000 annual cost saving. Its useful life is 12 years and the after-tax residual value of $6,000. Assume the required rate of return for both options is 8%. Using NPV method, determine which option is the more attractive. Must show your computation steps. Use the appropriate tables in Appendix A to obtain the relevant present value factor and round up your final answer to the nearest dollar.
Beryl's Iced Tea currently rents a bottling machine for $50,000 per year, including all maintenance expenses. It is considering purchasing a machine instead and is comparing two options: a. Purchase the machine it is currently renting for $155,000. This machine will require $23,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $260,000. This machine will require $17,000 per year in ongoing maintenance expenses and will lower bottling costs by $14,000 per year. Also, $36,000 will be spent up front to train the new operators of the machine. Suppose the appropriate discount rate is 9% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the cost of the rental machine. Assume also that the machines will be depreciated via the straight-line method over seven years and that they have a 10-year life with a negligible salvage value. The marginal corporate tax rate is 20%. Should Beryl's Iced…
Your firm needs a machine which costs $120,000, and requires $33,000 in maintenance for each year of its 5 year life. After 5 years, this machine will be replaced. The machine falls into the MACRS 5-year class life category. Assume a tax rate of 35 percent and a discount rate of 15 percent. What is the depreciation tax shield for this project in year 5?
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