com opnsidi) A company is considering replacing an existing machine with a more modern one. Here are some of the details: Old Machine $1,000,000 (7 years ago) $1,500,000 $200,000 $300,000 $0 (3 years from now) The tax rate is 40%. Assume straight-line depreciation and a RRR of 10%. Assume the salvage value of the investment is equal to zero when calculating the depreciation charge. O Find the NPV associated with the project New Machine Purchase Price $1,500,000 $1,500,000 $100,000 (10 years from now) Market Value Book Value Salvage Value 7 Age Original Life Yearly capacity Sales Price 10 10 55,000 units $7/unit 90,000 units $7/units Yearly expenses $100,000 $90,000 Training expenses Inventory not applicable $55,000 $30,000 $75,000

com opnsidi) A company is considering replacing an existing machine with a more modern one. Here are some of the details: Old Machine $1,000,000 (7 years ago) $1,500,000 $200,000 $300,000 $0 (3 years from now) The tax rate is 40%. Assume straight-line depreciation and a RRR of 10%. Assume the salvage value of the investment is equal to zero when calculating the depreciation charge. O Find the NPV associated with the project New Machine Purchase Price $1,500,000 $1,500,000 $100,000 (10 years from now) Market Value Book Value Salvage Value 7 Age Original Life Yearly capacity Sales Price 10 10 55,000 units $7/unit 90,000 units $7/units Yearly expenses $100,000 $90,000 Training expenses Inventory not applicable $55,000 $30,000 $75,000

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 5P

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Although the Chen Company’s milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $110,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $19,000 per year. It would have zero salvage value at the end of its life. The project cost of capital is 10%, and its marginal tax rate is 25%. Should Chen buy the new machine?
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?
answer is 4.3 years Please show your solution MANUALLY. don't use excel or financial calculator. Avalon Inc. is considering a new investment. The initial cost of the machinery is $184,000. Avalon expects the machinery to have a five-year useful life, with a $10,000 salvage value. Annual depreciation expense is computed as $34,800. Annual before-tax operating cash inflows are $67,000. Assume an effective tax rate of 30% and that all cash flows occur evenly throughout the year. Management has set a minimum required return of 12% for similar investments. Compute the discounted payback period in years for the potential investment.
A company is considering replacing an existing machine with a more moden one. Here are some of the details: The tax rate is 40%. Assume straight-line depreciation and a RRR of 10%. Assume the salvage value of the investment is equal to zero when calculating the depreciation charge. O Find the NPV associated with the project Old Machine New Machine $1,000,000 (7 years ago) $1,500,000 $200,000 $300,000 $0 (3 years from now) Purchase Price Market Value $1,500,000 $1,500,000 $100,000 (10 years from now) Book Value Salvage Value Age Original Life Yearly capacity Sales Price 7 10 10 55,000 units $7/unit 90,000 units $7/units Yearly expenses $100,000 $90,000 Training expenses Inventory not applicable $5,000 $30,000 $75,000
company is considering replacing an existing machine with a more modem one. Here are some of the details: The tax rate is 40%. Assume straight-line depreciation and a RRR of 10%. Assume the salvage value of the investment is equal to zero when calculating the Old Machine $1,000,000 (7 years ago) $1,500,000 $200,000 $300,000 S0 (3 years from now) New Machine Purchase Price $1,500,000 $1,500,000 $100,000 (10 years from now) depreciation charge. O Find the NPV Market Value Book Value Salvage Value associated with the project Age Original Life Yearly capacity 10 10 55,000 units S7/unit S100,000 90,000 units $7/units Sales Price Yearly expenses $90,000 Training expenses not applicable Inventory $30,000 $75,000 $55,000
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Dobson Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income of $59,000. The equipment will have an initial cost of $507,000 and have an seven year life. There is no salvage value of the equipment. The hurdle rate is 14%. Ignore income taxes. a. Calculate accounting rate of return. (Round your answer to 2 decimal places.) Rate of Return b. Calculate payback period (Round your answer to one decimal place.) Years Payback Period
Bartlett Car Wash Company is considering the purchase of a new facility. It would allow Bartlett to increase its net income by $106,439 per year. Other information about this proposed project follows: Initial investment $ 514,200 Useful life 10 years Salvage value $ 45,000 Assume straight line depreciation method is used. Required: 1. Calculate the accounting rate of return for Bartlett. Note: Round your percentage answer to 2 decimal places. 2. Calculate the payback period for Bartlett. Note: Round your answer to 2 decimal places. 1. Accounting Rate of Return 2. Payback Period % years