Active Parent manufactures baby furniture, clothing, strollers, and accessories. In the current year the company plans on purchasing a new machine to improve the quality and efficiency of production. Active Parent has prepared estimates of future cash flows overthe following four years, at which point it will sell the machine for $14,000. The company focuses on tax minimization and calculated depreciation over the four years using the straight-line method, a useful life of four years, and a residual value of $0.View the future cash flows.View the present value of $1 table.Read the requirements.View the present value of annuity of $1 table.Requirement 1. Calculate the net present value of the investment. (Use parentheses or a minus sign for a negative net present value. Round your answer to the nearest whole dollar.)Net present value of the investment:-Present Value of Annuity of $1 TableFuture Cash FlowsPeriods 2%Period 1 0.980Present Value of Annuity of $1.00 in Arrears*4%6%8% 10% 12% 14%0.962 0.943 0.926 0.909 0.893 0.87716%0.862 0.84718% 20% Per0.833 PeRelevant Cash Flows at End of Each yearPeriod 2 1.9421.886 1.833 1.783 1.736 1.690 1.647 1.605 1.5661.528 PeToday1234Period 3 2.884Initial investment$ (216,000)2.775 2.673 2.577 2.4872.402 2.3222.246 2.1742.106 PeAnnual cash flows from$ 32,000 $ 32,000 $ 32,000 $ 32,000Period 4 3.8083.630 3.465 3.3123.170 3.0372.914 2.798 2.6902.589 Peoperations (excludingdepreciation)Cash flow from sale of machinePeriod 5 4.7134.452 4.212 3.993 3.7913.605 3.4333.274 3.127 2.991 Pe14,000Period 6 5.6015.242 4.917 4.623 4.355 4.1113.8893.6853.498 3.326 PeRequired return on investmentIncome tax rateDepreciation method10%35%straight-linePeriod 7 6.4726.0025.582 5.2064.8684.564 4.2884.0393.812 3.605 PePeriod 8 7.3256.733 6.210 5.747 5.335 4.9684.639 4.344 4.078 3.837 PeCCA rate declining balance for income tax purposes 20%All CF occur at end of year except for the initial investment.Period 9 8.1627.4356.802 6.247 5.759 5.3284.946 4.607 4.303 4.031 PePeriod 10 8.9838.111 7.3606.710 6.145 5.6505.216 4.833 4.494 4.192 PePeriod 11 9.7878.760 7.887 7.139 6.495 5.9385.453 5.029 4.656 4.327 PePrintDonePeriod 12 10.5759.3858.384 7.5366.814 6.1945.660 5.197 4.793 4.439Pe1Period 13 11.3489.986 8.8537.9047.103 6.4245.842 5.342 4.910 4.533 PePeriod 14 12.106 10.563 9.2958.244 7.367 6.628 6.002 5.468 5.008 4.611 Pe☑

Net present value (NPV):The NPV considers both the timing and magnitude of cash inflows and…

Answered: Future Cash Flows Initial investment…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 4P

See similar textbooks

Similar questions

Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $190,000, a 3-year expected life, and after-tax cash flows (labor savings and depreciation) of $87,000 per year; and Machine 360-6, which has a cost of $360,000, a 6-year life, and after-tax cash flows of $98,300 per year. Knitting machine prices are not expected to rise because inflation will be offset by cheaper components (microprocessors) used in the machines. Assume that Filkins’ cost of capital is 14%. Should the firm replace its old knitting machine? If so, which new machine should it use? By how much would the value of the company increase if it accepted the better machine? What is the equivalent annual annuity for each machine?
Alfredo Company purchased a new 3-D printer for $900,000. Although this printer is expected to last for ten years, Alfredo knows the technology will become old quickly, and so they plan to replace this printer in three years. At that point, Alfredo believes it will be able to sell the printer for $15,000. Calculate yearly depreciation using the double-declining-balance method.
Montello Inc. purchases a delivery truck for $25,000. The truck has a salvage value of $6,000 and is expected to be driven for 125,000 miles. Montello uses the units-of-production depreciation method, and in year one it expects to use the truck for 26,000 miles. Calculate the annual depreciation expense.
Montello Inc. purchases a delivery truck for $25,000. The truck has a salvage value of $6,000 and is expected to be driven for 125,000 miles. Montello uses the units-of-production depreciation method, and in year one the company expects the truck to be driven for 26,000 miles; in year two, 30,000 miles; and in year three, 40,000 miles. Consider how the purchase of the truck will impact Montellos depreciation expense each year and what the trucks book value will be each year after depreciation expense is recorded.
Kenzie purchased a new 3-D printer for $450,000. Although this printer is expected to last for ten years, Kenzie knows the technology will become old quickly and so she plans to replace this printer in three years. At that point, Kenzie believes she will be able to sell the printer for $30,000. Calculate yearly depreciation using the double-declining-balance method.
Active Mama manufactures baby furniture, clothing, strollers, and accessories. In the current year the company plans on purchasing a new machine to improve the quality and efficiency of production. Active Mama has prepared estimates of future cash flows over the following four years, at which point it will sell the machine for $9,500. The company focuses on tax minimization and calculated depreciation over the four years using the straight-line method, a useful life of four years, and a residual value of $0. (Click the icon to view the future cash flows.) The NPV of the investment is $37,016. Active Mama has just heard about payback period and IRR. Assume the CCA rate is 20% and refer to the relevant cash flows. Required Requirement 1. Calculate the payback period. (Round your final answer to two decimal places.) The payback period of the investment is year(s). C Future cash flows Initial investment Annual cash flows from operations (excluding depreciation) Cash flow from sale of…
Comforting Mother manufactures baby furniture, clothing, strollers, and accessories. In the current year the company plans on purchasing a new machine to improve the quality and efficiency of production. Comforting Mother has prepared estimates of future cash flows over the following four years, at which point it will sell the machine for $9,500. The company focuses on tax minimization and calculated depreciation over the four years using the straight-line method, a useful life of four years, and a residual value of $0. (Click the icon to view the future cash flows.) The NPV of the investment is $42,087. Comforting Mother has just heard about payback period and IRR. Assume the CCA rate is 20% and refer to the relevant cash flows. Required Requirement 1. Calculate the payback period. (Round your final answer to two decimal places.) The payback period of the investment is year(s). Future cash flows Initial investment Annual cash flows from operations (excluding depreciation) Cash flow…
Ella's Bakery plans to purchase a new oven for its store . The oven has an estimated useful life of 4 years . The estimated pretax cash flows for the oven are as shown in the table that follows , with no anticipated change in working capital . Ella's Bakery has a 14 % after - tax required rate of return and a 35 % income tax rate . Assume depreciation is calculated on a straight - line basis for tax purposes using the initial investment in the oven and its estimated terminal disposal value . Assume all cash flows occur at year - end except for initial investment amounts .
Kendra's Bakery plans to purchase a new oven for its store. The oven has an estimated useful life of 4 years. The estimated pretax cash flows for the oven are as shown in the table that follows, with no anticipated change in working capital. Kendra's Bakery has a 10% after-tax required rate of return and a 30% income tax rate. Assume depreciation is calculated on a straight-line basis for tax purposes using the initial investment in the oven and its estimated terminal disposal value. Assume all cash flows occur at year-end except for initial investment amounts. E (Click the icon to view the estimated cash flows for the oven.) Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table Read the reguirements. Requirement 1. Calculate (a) net present value, (b) payback period, and (c) internal rate of return. a. Net present value. (Use factors to three decimal places, X.XXX. Round intermediary calculations and your final…
Emma's Bakery plans to purchase a new oven for its store. The oven has an estimated useful life of 4 years. The estimated pretax cash flows for the oven are as shown in the table that follows, with no anticipated change in working capital. Emma's Bakery has a 10% after-tax required rate of return and a 30% income tax rate. Assume depreciation is calculated on a straight-line basis for tax purposes using the initial investment in the oven and its estimated terminal disposal value. Assume all cash flows occur at year-end except for initial investment amounts. E (Click the icon to view the estimated cash flows for the oven.) Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table Read the requirements. Data Table i Requirements А В D E 1 Relevant Cash Flows at End of Each Year 1. Calculate (a) net present value, (b) payback period, and (c) internal rate of return. 2. Calculate accrual accounting rate of return based on…
APJ, Inc. is planning to purchase a new machine that will take six years to recover the cost. The new machine is expected to produce cash flow from operations, net of income taxes, of P4,500 a year for the first three years of the payback period and P3,500 a year of the last three years of the payback period. Depreciation of P3,000 a year shall be charged to income of the six years of the payback period. How much shall the machine cost? * A. P12,000 B. P18,000 C. P24,000 D. P36,000
Crane Lumber, Inc., is considering purchasing a new wood saw that costs $75,000. The saw will generate revenues of $100,000 per year for five years. The cost of materials and labor needed to generate these revenues will total $60,000 per year, and other cash expenses will be $10,000 per year. The machine is expected to sell for $4,400 at the end of its five-year life and will be depreciated on a straight-line basis over five years to zero. Crane’s tax rate is 34 percent, and its opportunity cost of capital is 10.50 percent. - What is the project's NPV?

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

Cornerstones of Cost Management (Cornerstones Ser…

Accounting

ISBN:

9781305970663

Author:

Don R. Hansen, Maryanne M. Mowen

Publisher:

Cengage Learning

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

Cornerstones of Cost Management (Cornerstones Ser…

Accounting

ISBN:

9781305970663

Author:

Don R. Hansen, Maryanne M. Mowen

Publisher:

Cengage Learning

Principles of Accounting Volume 1

Accounting

ISBN:

9781947172685

Author:

OpenStax

Publisher:

OpenStax College

SEE MORE TEXTBOOKS