Garrison Corporation is considering the replacement of an old machine that is currently being used. The old machine has a book value of $28,000. If Garrison decides to replace the old machine, Picco Company has offered to purchase it for $60,000 on the replacement date. Garrison has a tax rate of 40%. What is the after-tax cash flow associated with the salvage of the old machine? A. $32,000 B. $36,000 C. $47,200 D. $40,800

Garrison Corporation is considering the replacement of an old machine that is currently being used. The old machine has a book value of $28,000. If Garrison decides to replace the old machine, Picco Company has offered to purchase it for $60,000 on the replacement date. Garrison has a tax rate of 40%. What is the after-tax cash flow associated with the salvage of the old machine? A. $32,000 B. $36,000 C. $47,200 D. $40,800

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 5PROB

See similar textbooks

Similar questions

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?
Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required: 1. Patz Corporation is considering the purchase of a computer-aided manufacturing system. The cash benefits will be 800,000 per year. The system costs 4,000,000 and will last eight years. Compute the NPV assuming a discount rate of 10 percent. Should the company buy the new system? 2. Sterling Wetzel has just invested 270,000 in a restaurant specializing in German food. He expects to receive 43,470 per year for the next eight years. His cost of capital is 5.5 percent. Compute the internal rate of return. Did Sterling make a good decision?
The Jacob Chemical Company is considering building a new potassium sulfate plant. The following cash outlays are required to complete the plant: Year Cash Outlay $4,000,000 1 2,000,000 2 500,000 Jacob's cost of capital is 12 percent, and its marginal tax rate is 40 percent. a. Calculate the plant's net investment (NINV). b. What is the installed cost of the plant for tax purposes?
A tea Company is considering an investment proposal to install new milling controls. The project cost is `. 50,000. The facility has life of 5 years and no salvage value. The company’s tax rate is 55 %. The estimated cash flows before tax (CFBT) from the proposed investment proposal are as follows: Year CFBT (`) 1 10,000 2 11,000 3 14,000 4 15,000 5 25,000 Compute the following: i) Pay- Back Period ii) Average rate of return iii) Net present value at 10% discount rate iv) Profitability index at 10% discount rate
Homer 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 after tax of $169,650. The equipment will have an initial cost of $585,000 and have a 5-year life. If the salvage value of the equipment is estimated to be $25,000, what is the annual net cash flow? Multiple Choice $144,650 $57,650 $281650 $194,650
Sampaguita Company is considering the sale of a machine with a book value of P80,000 and 3 years remaining it its useful life. Straight-line depreciation of P25,000 annually is available. The machine has a current market value of P100,000. What is the cash flow from selling the machine if the tax rate is 40%? Select one: a. P88,000 b. P92,000 c. P80,000 d. P100,000
A corporation purchased a machine for $60,000 four years ago. It had an estimated life of 10 years and an estimated salvage value of $9,000. The current BV of this machine is $34,500. If the current MVof the machine is $42,000 and the effective income tax rate is 22%, what is the after-tax investment value of the machine? Use the outsider viewpoint. Choose the correct answer below. O A. $42,000 O B. $32,760 O C. $40,350 O D. $43,650 O E. $36,390
(Ignore income taxes in this problem.) Your Company purchased a machine with an estimated useful life of 7 years. The machine will generate cash inflows of $96,000 each year. The salvage value at the end of the project is $80,000. Your Company's discount rate is 10%. The net present value of the investment is ($5,000). What is the purchase price of the machine? Group of answer choices $508,368 $513,368 $503,368 $502,368
Last year you purchased a machine for $1M. You want to sell it today for $0.8M and replace it with a new machine that costs $1.2M. Both machines are classified as 20-year property (with depreciation rates of 5% and 9.5% in the first two years). The replacement will increase EBITDA by $100,0000. What are the cash flows at the time of replacement? The tax rate is 35%. Group of answer choices -$452,000 -$400,000 -$152,500 -$347,500 -$300,000
Acme is considering the sale of a machine with a book value of $80,000 and 3 years remaining in its useful life. Straight-line depreciation of $25,000 annually is available. The machine has a current market value of $100,000. What is the cash flow from selling the machine if the tax rate 40%. a. $25,000 b. $80,000 C. $92,000 d. $100,000 D, L & H 9e
The Jones Company has just completed the third year of a five-year MACRS recovery period for a piece of equipment it originally purchased for $299,000. a. What is the book value of the equipment? b. If Jones sells the equipment today for $178,000 and its tax rate is 21%, what is the after-tax cash flow from selling it? Note: Assume that the equipment is put into use in year 1. *** a. What is the book value of the equipment? The book value of the equipment after the third year is $. (Round to the nearest dollar.)
Martin D. Martian Inc. is considering the purchase of a new argyle sock knitting machine to replace a less automated one. The new machine will cost $250,000 plus $30,000 for shipping and $16,000 installation. The machine being replaced was purchased five years ago for $180,000 and depreciated as a 7-year MACRS property. It can be sold for $64,000. Martin has a marginal tax rate of 40%. Compute the NINV for the project. Use the rounded MACRS schedule listed below: (7-Year Depreciation Schedule: 14%, 25%, 18%, 12%, 9%, 9%, 9%, 4%)