Rader Railway is determining whether to purchase a new rail setter, which has a base price of $394,000 and would cost another $58,000 to install. The setter will be depreciated according to the MACRS 3-year class of assets, and it would be sold after three years for $196,000. Using the setter requires a $26,000 increase in net working capital. Although it would have no effect on revenues, the setter should save the firm $171,000 per year in before-tax operating costs (excluding depreciation). Rader's marginal tax rate is 40 percent, and its required rate of return is 13 percent. Should the setter be purchased? Do not round intermediate calculations. Round your answer to the nearest cent. Use a minus sign to enter a negative value, if any.   The setter_____________  be purchased because the net present value, that is $__________   , is ______ zero.

You must evaluate the purchase of a proposed Spectrometer for R&D department. The purchase. Price of the spectrometer including modifications is $200,000, and the equipment will be depreciated at the time of purchase. The equipment would be sold after 3 years for $51,000. The equipment would require a $15,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save firm $49,000 per year in before-tax laber casts. The firm's marginal fecteral-plus-state tarrate is 25% a) What is the initial investment outlay for the Spectrumeter after bonus depreciation is considered, that is the Year 0 project cash flow? the Enter your answer as a a positive value. Rand answer to the nearest dollar. $ b.) What are the project's annual cash flows in Years Round 1, 2, and 3? Do not round intermediate calculations. your answers to the nearest dollar. Year 1: 9 Year 2: $ Year 3: $ 10 4 your

A proposed cost-saving device has an installed cost of $765,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes (MACRS schedule). The required initial net working capital investment is $67,000, the tax rate is 21 percent, and the project discount rate is 9 percent. The device has an estimated Year 5 salvage value of $103,000. What level of pretax cost savings do we require for this project to be profitable? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Pretax cost savings

ABC Corporation is evaluating a project which involves producing a new drug. The project requires an investment in a new plant. ABC can either borrow the money to buy the plant or lease the plant from its manufacturer. The details of each alternative are shown as follows:   Purchase: The purchase price of the plant is $800,000 and is expected to have a salvage value of $50,000 at the end of its 4-year life. The plant qualifies for 25% reducing balance depreciation if owned.   Lease: The lease involves four annual payments in arrears of $150,000 payable at the end of each year, and a residual payment of $30,000 payable at the end of the lease term, i.e., at the end of year 4.   The company tax rate is 30%. The borrowing rate is 8% per annum. Calculate the NPV of leasing and advise the company as to whether it should purchase or lease the plant.

A proposed cost-saving device has an installed cost of $825,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes (MACRS schedule). The required initial net working capital investment is $91,000, the tax rate is 23 percent, and the project discount rate is 9 percent. The device has an estimated Year 5 salvage value of $139,000. What level of pretax cost savings do we require for this project to be profitable? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Pretax cost savings

You must evaluate a proposal to buy a new milling machine. The purchase price of the milling machine, including shipping and installation costs, is $110,000, and the equipment will be fully depreciated at the time of purchase. The machine would be sold after 3 years for $76,000. The machine would require a $6,500 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $35,000 per year. The marginal tax rate is 25%, and the WACC is 9%. Also, the firm spent $4,500 last year investigating the feasibility of using the machine. a. How should the $4,500 spent last year be handled? I. Last year's expenditure is considered an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis. II. Last year's expenditure is considered a sunk cost and does not represent an incremental cash flow. Hence, it should not be included in…

The Campbell Company is evaluating the proposed acquisition of a new milling machine. The machine’s base price is $108,000, and it would cost another $12, 500 to modify it for special use by your firm. The machine will be sold after three years for $65,000. The applicable depreciation rates are 33 percent, 45 percent, 15 percent, and 7 percent. The machine would require an increase in net operating working capital (inventory) of $5,500. The machine would have no effect on revenues, but is expected to save the firm $44,000 per year in before tax operating costs, mainly labor. Campbell’s marginal tax rate is 35 percent. What is the Net Investment (NINV)

A proposed project requires an investment of $250,000 and will require an additional $60,000 for upgrades in year five. The income from the project is expected to be $65,000 in years one through four and $50,000 in years six through seven. In year five, revenue to be in ye of the $60,000 spent for upgrades). There is not salvage value. If the external reinvestment rate of 8% is available, what is the rate of return for this project using the ERR method? $250,000 $65,000 $65,000 $65,000 $65,000 TITT $60,000 $50,000 $50,000

You must evaluate a proposal to buy a new milling machine. The purchase price of the milling machine, including shipping and installation costs, is $117,000, and the equipment will be fully depreciated at the time of purchase. The machine would be sold after 3 years for $45,000. The machine would require a $10,000 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $34,000 per year. The marginal tax rate is 25%, and the WACC is 11%. Also, the firm spent $4,500 last year investigating the feasibility of using the machine. a. How should the $4,500 spent last year be handled? I. Last year's expenditure is considered an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis. II. Last year's expenditure is considered a sunk cost and does not represent an incremental cash flow. Hence, it should not be included…

Vastine​ Medical, Inc., is considering replacing its existing computer​ system, which was purchased 2 years ago at a cost of $318,000. The system can be sold today for $203,000. It is being depreciated using MACRS and a​ 5-year recovery period​ (see the table). A new computer system will cost $506,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 21% tax rate on ordinary income and capital gains.   a. Calculate the book value of the existing computer system. b. Calculate the​ after-tax proceeds of its sale for $203,000. c. Calculate the initial cash flow associated with the replacement project.   Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes           Percentage by recovery year*       Recovery year  3 years  5 years  7 years  10 years 1 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 5   12% 9% 9% 6   5% 9% 8% 7     9%…