Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $7,200 and sell its old washer for $2,100. The new washer will last for 6 years and save $1,700 a year in expenses. The
a. If the firm uses straight-line
b. What is project
c. What is NPV if the firm investment is entitled to immediate 100% bonus depreciation? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Trending nowThis is a popular solution!
Step by stepSolved in 6 steps with 6 images
- Karsted Air Services is now in the final year of a project. The equipment originally cost $23 million, of which 100% has been depreciated. Karsted can sell the used equipment today for $6 million, and its tax rate is 20%. What is the equipment's after-tax salvage value? Write out your answer completely. For example, 13 million should be entered as 13,000,000. Round your answer to the nearest dollar. $arrow_forwardLaurel’s Lawn Care Limited has a new mower line that can generate revenues of $132,000 per year. Direct production costs are $44,000, and the fixed costs of maintaining the lawn mower factory are $17,000 a year. The factory originally cost $1.10 million and is being depreciated for tax purposes over 25 years using straight-line depreciation. Calculate the operating cash flows of the project if the firm’s tax bracket is 25%. Operating Cash Flow = _________arrow_forwardA Funiture Factory is considering buying a new automated planing machine for a cost of $80,250. This price includes a complete guarantee of the maintenance costs for the first two years, and it covers a good proportion of the maintenance costs for years 3 and 4. The company’s portion of the maintenance cost is estimated to be $1,000 in year 3 and $3,000 in year 4. Depreciation on the capital cost would be 7% per year. Determine the Economic Life and EAC* of the new machine assuming the MARR is 6.5% and that there will be an installation cost of $2,800. PLEASE PLEASE SHOW FULL DETAILED STEPSarrow_forward
- 1. A start-up biotech company is considering making an investment of $100,000 in a newfiltration system. The associated estimates are summarized below: Annual receipts $75,000Annual expenses $45,000Useful life 8 yearsSalvage value $20,000 Straight line depreciation will be used, and the effective income tax rate is 20%. The After-tax MARR is 15% per year. Determine whether this investment is an attractive option for the company.arrow_forwardeEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $60,000 to purchase and install and $30,000 to operate each year. The system is estimated to be useful for 4 years. Management expects the new system to reduce the cost of managing inventories by $62,000 per year. The firm’s cost of capital (discount rate) is 10%. Required: 1. What is the net present value (NPV) of the proposed investment under each of the following independent situations? (Use the appropriate present value factors from Appendix C, TABLE 1 and Appendix C, TABLE 2.) 1a. The firm is not yet profitable and therefore pays no income taxes. 1b. The firm is in the 30% income tax bracket and uses straight-line (SLN) depreciation with no salvage value. Assume MACRS rules do not apply. 1c. The firm is in the 30% income tax bracket and uses double-declining-balance (DDB) depreciation with no salvage value. Given a four-year life, the DDB…arrow_forwardLaurel’s Lawn Care Limited has a new mower line that can generate revenues of $120,000 per year. Direct production costs are $40,000, and the fixed costs of maintaining the lawn mower factory are $15,000 a year. The factory originally cost $1 million and is being depreciated for tax purposes over 25 years using straight-line depreciation. Calculate the operating cash flows of the project if the firm’s tax bracket is 25%.arrow_forward
- Novel Industries purchases a 41.2 million cyclo-converter. The cyclo-converter will be depreciated by 10.30 million per year over 4 years, starting this year. Suppose Nokela's tax rate is 40%. a) a. What impact will the cost of the purchase have on earnings for each of the next 4 years? b) What impact will the cost of the purchase have on the firm's cash flow for the next 4 years?arrow_forwardA new machine costing $150,000 is expected to save the McKaig Brick Company $11,000 per year for 5 years before depreciation and taxes. The machine will be depreciated on a straight-line basis for a 5-year period to an estimated salvage value of $0. The firm’s marginal tax rate is 40 percent. What are the annual net cash flows associated with the purchase of this machine? Round your answer to the nearest dollar. $ Compute the net investment (NINV) for this project. Round your answer to the nearest dollar. $arrow_forwardVan Nuys Company is considering the purchase of a new machine which will cost $7.370. The machine will provide revenues of $4,000 per year. The cash operating costs will be $2,000 per year. The new machine will have a useful life of six years. The company's cost of capital is 12 percent. Ignore income taxes. Should the company buy the new machine? Yes, because NPV=0 and IRR0 and IRR>Cost of Capital No, because NPV>0 and IRR0 and IRR>Cost of Capital O Yes, because NPV = IRR Question 4arrow_forward
- Gluon Incorporated is considering the purchase of a new high pressure glueball. It can purchase the glueball for $40,000 and sell its old low-pressure glueball, which is fully depreciated, for $6,000. The new equipment has a 10-year useful life and will save $10,000 a year in expenses before tax. The opportunity cost of capital is 12%, and the firm's tax rate is 21%. What is the equivalent annual saving from the purchase if Gluon can depreciate 100% of the investment immediately. Note: Do not round intermediate calculations. Round your answer to 2 decimal places.arrow_forwardLaurel's Lawn Care Ltd., has a new mower line that can generate revenues of $174,000 per year. Direct production costs are $58,000, and the fixed costs of maintaining the lawn mower factory are $24,000 a year. The factory originally cost $1.45 million and is being depreciated for tax purposes over 25 years using straight-line depreciation. Calculate the operating cash flows of the project if the firm's tax bracket is 25%. (Enter your answer in dollars not in millions.) Operating cash flowsarrow_forwardYour firm is considering an investment in luxury cars for its livery service between Oxford and CVG airport. The purchase price of the cars is $300,000 and the service is expected to contribute gross profit of $150,000 per year (excluding depreciation) for 3 years. The vehicles will be fully depreciated using straight-line depreciation over 3 years. The cars will be sold at the end of the third year for $75,000. There is no expected impact on NWC, the tax rate is 21%, and the WACC is 10%. What is the NPV of the investment?arrow_forward
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education