A machine that costs $12,000 is expected to operate for 10 years. The estimated salvage value at the end of 10 years is $0. The machine is expected to save the company $2,331 per year before taxes and depreciation. The company depreciates its assets on a straight-line basis and has a marginal tax rate of 40 percent. The firm's cost of capital is 14 percent. What is the internal rate of return (IRR) for the machine? Based on the IRR criterion, should this machine be purchased?
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- A machine costs $600,000 and is expected to yield an after-tax net income of $23,000 each year. Management predicts this machine has a 9-year service life and a $120,000 salvage value, and it uses straight-line depreciation. Compute this machine's accounting rate of return. Accounting Rate of Return Choose Numerator: Choose Denominator: Accounting Rate of Return %3D Accounting rate of returnIn 2015, a firm has receipts of $8 million and expenses (excluding depreciation) of $4 million. Its depreciation for 2015 amounts to $2 million. If the effective income tax rate is 40%, what is this firm’s net operating income after taxes (NOPAT)?You purchased a company for $5,500,000. The value of each piece of the company is as follows: Equipment $ 600,000 Building (not including land) $ 4,500,000 Land $ 400,000 The building has an expected salvage value of $2,000,000 and will be depreciated using the MACRS method over 10 years. The equipment will be depreciated using the SOYD method over six years and has no salvage value. Assuming the land does not increase in value what is the book value of the company in five years? Select One: a) 1,689,071 b) 1,728, 700 c) 1,745, 325 d) 2,089,071 e) 2,487,345
- Item A is currently in use at a plant. The original cost of the piece of machinery was $2,000. Its maintenance cost is $500 this year, increasing each year by $30. Items A can be replaced by Item B which has a current cost of $3,500. Item B has no annual maintenance costs, but it is anticipated that the item purchase cost increases by $50 per year. Disregarding income taxes effects (such as depreciation), what is the predicted optimum time (after year 'X') to schedule a replacement of Item A with Item B. Use 8% as the 'interest rate', which really is the value of money to the company. a. 5 years b. 6 years c. 7 years d. 8 yearsWe are evaluating a project that costs $2,190,000, has a 8-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 91,200 units per year. Price per unit is $38.97, variable cost per unit is $24.05, and fixed costs are $866,000 per year. The tax rate is 22 percent and we require a return of 11 percent on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within \pm 10 percent. Calculate the best-case and worst -case NPV figures.= You are given the following information for Calvani Pizza Co.: sales = $41200; costs $21601; addition to retained earnings = $7046; dividends paid = $3793; interest expense = $2391; tax rate = 30 percent. Calculate the depreciation expense.
- The Shell Corporation has a 34% tax rate and owns a piece of petroleum-drilling equipment that costs $119,000 and will be depreciated at a CCA rate of 30%. Shell will lease the equipment to others and each year receive $33,100 in rent. At the end of five years, the firm will sell the equipment for $31,600. All values are presented in today's dollars. Calculate the overall present worth of these cash flows with tax effects if market interest rate is 10% and annual inflation rate is 2%. (Note: Don't use the $ sign in your answer and round it up to 2 decimal places)Kolby's Korndogs is looking at a new sausage system with an installed cost of $670,000. The asset qualifies for 100 percent bonus depreciation and can be scrapped for $88,000 at the end of the project's 5-year life. The sausage system will save the firm $213,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $41,000. If the tax rate is 23 percent and the discount rate is 11 percent, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPVQ7.Jett Gas LLC has total sales of $1,479,600 and costs of $914,300. Depreciation is$41,650 and the tax rate is 34 percent. The firm does not have any interest expense.What is the operating cash flow?
- You are evaluating two different silicon wafer milling machines. The Techron I costs $228,000, has a three-year life, and has pretax operating costs of $59,000 per year. The Techron II costs $400,000, has a five-year life, and has pretax operating costs of $32,000 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $36,000. If your tax rate is 24 percent and your discount rate is 8 percent, compute the EAC for both machines. Note: Your answer should be a negative value and indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.A proposed cost-saving device has an installed cost of $570,000. It is in Class 8 (CCA rate = 20%) for CCA purposes. It will actually function for five years, at which time it will have no value. There are no working capital consequences from the investment, and the tax rate is 35%. a. What must the pre-tax cost savings be for us to favour the investment? We require an 11% return. (Hint: This one is a variation on the problem of setting a bid price.) (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Cost savings $122332.17 b. Suppose the device will be worth $81,000 in salvage (before taxes). How does this change your answer? (Do not round your Intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Cost savings 170855.86Your company has been doing well, reaching $1.18 million in earnings, and is considering launching a new product. Designing the new product has already cost $505,000. The company estimates that it will sell 815,000 units per year for $2.91 per unit and variable non-labor costs will be $1.16 per unit. Production will end after year 3. New equipment costing $1.18 million will be required. The equipment will be depreciated to zero using the 7-year MACRS schedule. You plan to sell the equipment for book value at the end of year 3. Your current level of working capital is $301,000. The new product will require the working capital to increase to a level of $384,000 immediately, then to $406,000 in year 1, in year 2 the level will be $360,000, and finally in year 3 the level will return to $301,000. Your tax rate is 21%. The discount rate for this project is 10.2%. Do the capital budgeting analysis for this project and calculate its NPV. Note: Assume that the equipment is put into use in year…