Denny Kean owns a very profitable ice cream stand. Based on the results of a $6,600 marketing research project, Denny is now considering adding a line of frozen yogurt to his product mix. Denny expects that the machine necessary to produce the yogurt will cost $130,000, last for five years and have a salvage value of $10,000 at the end of the fifth year. For tax purposes, Denny will depreciate the yogurt machine over the five years to a zero salvage value using the straight-line method. Denny will incur extra annual fixed costs of $1,500 per year if he acquires this machine, while his variable costs (the cone/cup, yogurt, wrapping paper, spoons, etc.) will be $0.50 per serving. He expects to sell 100 servings a day (365 days in a year) at a price per serving to be determined. The annual rent on his stand under the existing noncancelable lease (with ten years remaining) is $18,000 per year, with built-in annual increases to cover inflation (expected to be 3% annually). The relevant income tax rate for Denny's business is 30% (both for ordinary income and capital gains/losses) and his cost of capital (same as MARR or "hurdle rate") is 15%. Required: What is the lowest price that Denny could charge for a serving of yogurt and still justify acquiring the machine? Show your work!!

A corporation in 2018 expects a gross income of $430,000, total operating expenses of $330,000, and capital investments of $14,000. In addition the corporation is able to declare $53,000 of depreciation charges for the year. The federal income tax rate is 21%. What is the expected taxable income and total federal income taxes owed for the year 2018?

A pallette conveyor system used to transport pallettes of product at the Browning Harvey plant in St. John's costs $250,000 plus $35,000 to install. It is estimated to depreciate at a declining balance rate of 25% per year over its 15-year useful life. Annual maintenance costs are estimated to be $9,000 for the first year, increasing by 20% every year thereafter. In addition, every third year, the rollers must be replaced at a cost of $6,000. Interest is at 9%. Construct a spreadsheet that has the following headings: Year, Salvage Value, Maintenance Costs, and the EAC of each of Capital Costs, Maintenance Costs and a Total Equivalent Annual Costs (as used in the lectures and is shown below). The economic life of the conveyor system is determined by the year that has the lowest Total Equivalent Annual Cost. Complete the row of the table below, inputting data for the row that has the lowest Total Equivalent Annual Cost from your spreadsheet for this project: NOTE: (Use 5 significant…

A piece of equipment having a negligible salvage and scrap value is estimated to have a MACRS and straight line recovery period of 5 years. The original cost of the equipment was $50,000. Determine (1) the depreciation charge for the second year if straight-line deprecia- tion is used and the percent of the original investment paid off in the first 2 years, and (2) the depreciation charge for the fifth year if the modified acceleration cost recovery system (MACRS) is used, and the percent of the original investment paid off in the first 2 years.

Material-handling equipment used in the manufacture of grain products (MACRS-GDS 10-year property) is purchased and installed for $180,000. It is placed in service in the middle of the tax year. If it is removed just before the end of the tax year approximately 4.5 years from the date placed in service, determine the depreciation deduction during each of the tax years involved using MACRS-GDS allowances. ———————- Repeat the previous problem if the material-handling equipment is removed just after the tax year, again using MACRS-GDS allowances.

A concrete and rock crusher for demolition work has been purchased for $50,000, and it has an estimated SV of $12,000 at the end of its five year life Engineers have estimated that the following units of production (in m³ of crushed material) will be contracted over the next five years. Using the units of production depreciation method, what is the depreciation allowance in year three, and what is the BV at the end of year two? The depreciation allowance in year three is $ The BV at the end of year two is $. (Round to the nearest dollar) (Round to the nearest dollar) EOY m³ 1 14,000 2 26,000 3 35,000 4 17,000 5 8,000

Consider the following information for year 1 of a project using equipment that had an initial cost of $100,000, and an estimated salvage value of $10,000 at disposal: BTCF = $16,000MACRS 10-year property classState & Federal Combined Income Tax Rate: 45% What is the ATCF for year 1?

Hyundai USA has numerous robotic welders as well as robotic checkers with vision. One underbody robotic welder costing $1,200,000 (7-year property class) was installed and is increasing productivity by 2.5% in one area. The result is a savings of $500,000 per year. Deductible expenses other than depreciation and interest associated with the installed robotic welder are only $120,000. Hyundai borrowed $550,000 at 11% for 5 years. They plan to keep the welder for 8 years. Hyundai’s income-tax rate is 25% and their MARR is 9% after taxes. Determine the PW, IRR, for the investment if: The loan is paid back using Plan 3  Plan 3—make equal principal-plus-interest end-of-period payments.

The managers of PonchoParts, Inc. plan to manufacture engine blocks for classic cars from the 1960s era. They expect to sell 250 blocks annually for the next five years. The necessary foundry and machining equipment will cost a total of $800,000 and belongs in a 30% CCA class for tax purposes. The firm expects to be able to dispose of the manufacturing equipment for $150,000 at the end of the project. Labour and materials costs total $500 per engine block, fixed costs are $125,000 per year. Assume a 35% tax rate and a 12% discount rate. What is the minimum bid price the firm should set as a sale price for the blocks if the firm were in a bidding situation?   a. $2382 b. $1692 c. $1934

10.16 An asset in the five-year MACRS property class costs $150,000 and has a zero estimated salvage value after six years of use. The asset will generate annual revenues of $320,000 and will require $80,000 in annual labor and $50,000 in annual material expenses. There are no other revenues and expenses. Assume a tax rate of 25%. a. Compute the after-tax cash flows over the project life. b. Compute the NPW at MARR=12%. Is the investment acceptable?