A company is thinking of opening a new office, and the key data are shown below. The company owns the building that would be used, and it could sell it for $100,000 after taxes if it decides not to open the new office. The equipment for the project would be depreciated by the straight-line method over the project's 3-year life, after which it would be worth nothing and thus it would have a zero salvage value. No change in net operating working capital would be required, and revenues and other operating costs would be constant over the project's 3-year life. What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.) Do not round the intermediate calculations and round the final answer to the nearest whole number. WACC 10.0% Opportunity cost $100,000 Net equipment cost (depreciable basis) $65,000 Straight-line depr. rate for equipment 33.333% Annual sales revenues $128,000 Annual operating costs (excl. depr.) $25,000 Tax rate 35%

A company is thinking of opening a new office, and the key data are shown below. The company owns the building that would be used, and it could sell it for $100,000 after taxes if it decides not to open the new office. The equipment for the project would be depreciated by the straight-line method over the project's 3-year life, after which it would be worth nothing and thus it would have a zero salvage value. No change in net operating working capital would be required, and revenues and other operating costs would be constant over the project's 3-year life. What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.) Do not round the intermediate calculations and round the final answer to the nearest whole number. WACC 10.0% Opportunity cost $100,000 Net equipment cost (depreciable basis) $65,000 Straight-line depr. rate for equipment 33.333% Annual sales revenues $128,000 Annual operating costs (excl. depr.) $25,000 Tax rate 35%

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 4P: Although the Chen Company’s milling machine is old, it is still in relatively good working order and...

See similar textbooks

Similar questions

Bangor Moving Company is thinking of opening a new warehouse, and the key data are shown below. The company owns the building that would be used, and it could sell it for $100,000 after taxes if it decides not to open the new warehouse. The equipment for the project would be depreciated by the straight-line method over the project's 3-year life, after which it would be worth nothing and thus it would have a zero salvage value. No new working capital would be required, and revenues and other operating costs would be constant over the project's 3-year life. What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.) Project cost of capital (r)10.0%Opportunity cost$100,000Net equipment cost (depreciable basis)$65,000Straight-line deprec. rate for equipment33.333%Sales revenues, each year$123,000Operating costs (excl. deprec.), each year$25,000Tax rate25%
Century Roofing is thinking of opening a new warehouse, and the key data are shown below. The company owns the building that would be used, and it could sell it for $100,000 after taxes if it decides not to open the new warehouse. The equipment for the project would be depreciated by the straight-line method over the project's 3-year life, after which it would be worth nothing and thus it would have a zero salvage value. No new working capital would be required, and revenues and other operating costs would be constant over the project's 3-year life. What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.) Project cost of capital (r) 10.0% Opportunity cost $100,000 Net equipment cost (depreciable basis) $65,000 Straight-line deprec. rate for equipment 33.333% Sales revenues, each year $123,000 Operating costs (excl. deprec.), each year $25,000 Tax rate 25%
Century Roofing is thinking of opening a new warehouse, and the key data are shown below. The company owns the building that would be used, and it could sell it for $100,000 after taxes if it decides not to open the new warehouse. The equipment for the project would be depreciated by the straight-line method over the project's 3-year life, after which it would be worth nothing and thus it would have a zero salvage value. No new working capital would be required, and revenues and other operating costs would be constant over the project's 3-year life. What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.) Project cost of capital (r) 10.0% Opportunity cost $100,000 Net equipment cost (depreciable basis) $65,000 Straight-line deprec. rate for equipment 33.333% Sales revenues, each year $123,000 Operating costs (excl. deprec.), each year $25,000 Tax rate 25% a. $29,691 b. $26,796 c. $31,254 d. $28,207
Sub-Prime Loan Company is thinking of opening a new office, and the key data are shown below. The company owns the building that would be used, and it could sell it for $100,000 after taxes if it decides not to open the new office. The equipment for the project would be depreciated by the straight-line method over the project's 3-year life, after which it would be worth nothing and thus it would have a zero salvage value. No change in net operating working capital would be required, and revenues and other operating costs would be constant over the project's 3-year life. What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.) Do not round the intermediate calculations and round the final answer to the nearest whole number. WACC 10.0% Opportunity cost $100,000 Net equipment cost (depreciable basis) $65,000 Straight-line depr. rate for equipment 33.333% Annual sales revenues $128,000 Annual operating costs (excl. depr.) $25,000 Tax rate 35%
The Sumitomo Chemical Corporation is considering replacing a 5-year-old machine that originally cost $50,000 and can be sold for $60,000. This machine is totally depreciated. The replacement machine would cost $125,000 and have a 5-year expected life over which it would be depreciated down using the straight-line method and have no salvage value at the end of five years. The new machine would produce savings before depreciation and taxes of $45,000 per year. Assuming a 34 percent marginal tax rate and a required return of 10%, calculate The internal rate of return and the net present value. Please show work in Excel.
The Bigbee Bottling Company is contemplating the replacement of one of its bottling machines with a newerand more efficient one. The old machine has a book value of $600,000 and a remaining useful life of 5 years.The firm does not expect to realize any return from scrapping the old machine in 5 years, but it can sell itnow to another firm in the industry for $265,000. The old machine is being depreciated toward a zerosalvage value, or by $120,000 per year, using the straight-line method. The new machine has a purchaseprice of $1,175,000, an estimated useful life 6 year and fall under 5 years MACRS, and an estimated salvagevalue of $145,000. The applicable depreciation rates are 20 percent, 32 percent, 19 percent, 12 percent, 11percent, and 6 percent. It is expected to economize on electric power usage, labor, and repair costs, as well asto reduce the number of defective bottles. In total, an annual savings of $255,000 will be realized if the newmachine is installed. The company’s…
The company you work for is planning to buy a new rock crushing machine to replace an existing one. The purchase price of a new machine is $60,000. Estimates for the operating and maintenance (O&M) costs for the new machine are that it will be $4,500 the first year and will then increase $3,000 per year every year there after. The new machine follows a declining balance depreciation model. The salvage values after the first year is estimated to be $48,000. The company uses a MARR of 6.5% for all financial analysis. Determine the depreciation rate of the new rock crushing machine What is the Economic Life of the new machine and the minimum Equivalent Annual Cost (EAC)? Show ALL your calculations to justify your answer.
Tyrell Corp. is considering replacing a machine. The old one is currently being depreciated at $70,000 per year (straight-line), and is scheduled to end in five years with no remaining book value. If you don’t replace it, you will be lucky to get it removed for the amount you could salvage it for, so you don’t expect any profit in five years. If you replace the old machine now, you believe you can salvage it for $375,000 and buy a new machine for $850,000, plus $25,000 shipping fee and another $25,000 for installation. The new machine will not change the revenue or NOWC, but it will reduce the operating costs of the company by $145,000 per year. The new machine will be depreciated using the three-year MACRS schedule (the table is provided on the Moodle for your convenience). The useful life of this machine is five years, and it is expected that the machine can be sold at $20,000 at the end of the five years. Assume a tax rate of 25% and the cost of capital for the company is 8%.…
Tyrell Corp. is considering replacing a machine. The old one is currently being depreciated at $70,000 per year (straight-line), and is scheduled to end in five years with no remaining book value. If you don't replace it, you will be lucky to get it removed for the amount you could salvage it for, so you don't expect any profit in five years. If you replace the old machine now, you believe you can salvage it for $375,000 and buy a new machine for $850,000, plus $25,000 shipping fee and another $25,000 for installation. The new machine will not change the revenue or NOWC, but it will reduce the operating costs of the company by $145,000 per year. The new machine will be depreciated using the three-year MACRS schedule (the table is provided on the Moodle for your convenience). The useful life of this machine is five years, and it is expected that the machine can be sold at $20,000 at the end of the five years. Assume a tax rate of 25% and the cost of capital for the company is 8%.…
note: can you help me answer the question for a, b and c?Muthusamy Curry Mills (MCM) is considering the purchase of a new milling equipment to replace an existing one that has a book value of $3,000 and can be sold for $1,500. The old machine is being depreciated on a straight-line basis and its estimated salvage value 3 years from now is zero. The new machine will reduce costs (before taxes) by $7,000 per year. It has a 3-year life; with an installed cost of $14,000; and it can be sold for an expected $2,000 at the end of the third year. The new machine would be depreciated over its 3-year life using the MACRS method. The applicable depreciation rates are as follows: Year 1: 33% Year 2: 45% Year 3: 15% Year 4: 7% Assume a 40% tax rate and a cost of capital of 16%. a. The initial investment associated with the replacement of the old milling equipment by the new one is? b. The incremental operating cash flows associated with the proposed replacement in Year 1 is? c. The…
Green Company can purchase a new machine for $100,000. The new machine will have a five-year life with no salvage value. The machine should reduce labor costs by $22,000 per year. Green Company would have to scrap its existing machine, receiving no cash. The existing machine has a book value of $15,000. Should Green purchase the new machine? Yes, as the decreased labor costs are greater than the cost of the new machine. No, as the decreased labor costs are less than the cost of the new machine plus the book value of the existing machine. No, as the decreased labor costs are less than the cost of the new machine. Yes, as the decreased labor costs are greater than the cost of the new machine plus the book value of the existing machine.
Jing Inc. is considering the replacement of a piece of equipment with a newer model. The following data has been collected (see the attached image). If the old equipment is replaced now, it can be sold for P60,000. Both the old equipment’s remaining useful life and the new equipment’s useful life is 5 years. Each of the assets has no end-of-life salvage value. How much is the net advantage (disadvantage) of replacing the old equipment with the new equipment?