red Car Co. is considering the acquisition of a new armored truck. The truck is expected to cost $300,000. The company's discount rate is 12 percent. The firm has determined that the truck generates a positive net present value of $17,022. However, the firm is uncertain as to whether it has determined a reasonable estimate of the salvage value of the truck. In computing the net present value, the company assumed that the truck would be salvaged at the end of the fifth year for $60,000. What expected salvage value for the truck would cause the investment to generate a net pre

Cisco Systems is purchasing a new bar code scanning device for its service center in San Francisco. The table on the right lists the relevant initial costs for this purchase. The service life of the system is 4 years and its salvage value for depreciation purposes is expected to be about 25% of the hardware cost. a. What is the cost basis of the device? b. What are the annual depreciations of the device if (i) the SL method is used? (ii) the 150% DB method is used? (iii) the 200% DB method is used? c. Calculate the book values of the device at the end of 4 years using all the methods above. Answers: (a) The cost basis of the device is (Round to the nearest dollar) (b) Annual depreciaitions and book values: (Round to the nearest dollar) Year 1 2 3 4 Book values at end of year 4 SL $ 150% DB $ 200% DB $ $ C Cost Item Hardware Training Installation Cost $165,000 $16,000 $14,000

ou must evaluate a proposal to buy a new milling machine. The purchase price of the milling machine, including shipping and installation costs, is $157,000, and the equipment will be fully depreciated at the time of purchase. The machine would be sold after 3 years for $86,000. The machine would require an $8,000 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 $47,000 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.   What is the initial investment outlay for the machine for capital budgeting purposes after the 100% bonus depreciation is considered, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar.

Sunland Inc. wants to replace its current equipment with new high-tech equipment. The existing equipment was purchased 5 years ago at a cost of $122,000. At that time, the equipment had an expected life of 10 years, with no expected salvage value. The equipment is being depreciated on a straight-line basis. Currently, the market value of the old equipment is $40,100. The new equipment can be bought for $175,880, including installation. Over its 10-year life, it will reduce operating expenses from $193,900 to $145,000 for the first six years, and from $204,800 to $191,300 for the last four years. Net working capital requirements will also increase by $20,700 at the time of replacement. It is estimated that the company can sell the new equipment for $24,900 at the end of its life. Since the new equipment's cash flows are relatively certain, the project's cost of capital is set at 9 %, compared with 15% for an average - risk project. The firm's maximum acceptable payback period is 5…

A business firm is contemplating to purchase new equipment. The purchase price is 60,000 and its annual operating cost is 2,675.4. The machine has a life of 7 years and is expected to generate 15,000 in revenues in each year of its life. Determine the internal rate of return of the machine, assuming zero salvage value.

A company is considering replacing an old machine. The trade-in value of the old machine is currently $30,000. The unit costs $250,000 annually to operate and maintain. A new unit can be purchased for $700,000 and will have annual O&M costs of $120,000. If the old unit is retained it will have no salvage value at the end of its remaining life of 10 years. The new unit, if purchased, will have a salvage value $50,000 in 10 years. Find a) the equivalent uniform annual cost (EUAC) for keeping the old machine, and b) the EUAC for replacing the old machine with the new machine. Should the old machine be replaced based on your calculations? The MARR is 10%. Use the cash flow approach (insider's viewpoint approach)

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.

Nguyen Inc. is considering the purchase of a new computer system (ICX) for $140,000. The system will require an additional $20,000 for installation. If the new computer is purchased it will replace an old system that has been fully depreciated. The new system will be depreciated over a period of 8 years using straight-line depreciation. If the ICX is purchased, the old system will be sold for $20,000. The ICX system, which has a useful life of 8 years, is expected to increase revenues by $31,000 per year over its useful life. Operating costs are expected to decrease by $3,000 per year over the life of the system. The firm is taxed at a 40 percent marginal rate. Round your answers to the nearest dollar. A. what investment is required to acquire the ICX system and replace the old system? B. compute the annual net cash flows associated with the purchase of the ICX system.

Daily Enterprises is purchasing a $9.6 million machine. It will cost $46,000 to transport and install the machine. The machine has a depreciable life of five years and will have no salvage value. If Daily uses​ straight-line depreciation, what are the depreciation expenses associated with this​ machine? The yearly depreciation expenses are ​$___________ ​(Round to the nearest​ dollar.)

Ralph’s Bow Works (RBW) is planning to add a new line of bow ties that will require the acquisition of a new knitting and tying machine. The machine will cost $1.3 million. It is classified as a 7-year MACRS asset and will be depreciated as such. Interest costs associated with financing the equipment purchase are estimated to be $50,000 per year. The expected salvage value of the machine at the end of 10 years is $80,000. The decision to add the new line of bow ties will require additional net working capital of $55,000 immediately, $30,000 at the end of year 1, and $10,000 at the end of year 2. RBW expects to sell $370,000 worth of the bow ties during each of the 10 years of product life. RBW expects the sales of its other ties to decline by $23,000 (in year 1) as a result of adding this new line of ties. The lost sales level will remain constant at $23,000 over the 10-year life of the proposed project. The cost of producing and selling the ties is estimated to be $70,000 per year.…