Required: a. What is the division's residual income before considering the project? b. What is the division's residual income if the asset is purchased? c. What is the division's residual Income if the asset is leased?
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- Postman Company is considering two independent projects. One project involves a new product line, and the other involves the acquisition of forklifts for the Materials Handling Department. The projected annual operating revenues and expenses are as follows: Required: Compute the after-tax cash flows of each project. The tax rate is 40 percent and includes federal and state assessments.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?The Plastics Division of Minock Manufacturing currently earns $3.54 million and has divisional assets of $25 million. The division manager is considering the acquisition of a new asset that will add to profit. The investment has a cost of $5,466,000 and will have a yearly cash flow of $1,458,500. The asset will be depreciated using the straight-line method over a five-year life and is expected to have no salvage value. Divisional performance is measured using ROI with beginning-of-year net book values in the denominator. The company's cost of capital is 7 percent. Ignore taxes. The division manager learns that there is an option to lease the asset on a year-to-year lease for $1,162,000 per year. All depreciation and other tax benefits would accrue to the lessor. Required: a. What is the division's residual income before considering the project? b. What is the division's residual income if the asset is purchased? c. What is the division's residual income if the asset is leased? Note:…
- The Plastics Division of Minock Manufacturing currently earns $3.54 million and has divisional assets of $25 million. The division manager is considering the acquisition of a new asset that will add to profit. The investment has a cost of $5,466,000 and will have a yearly cash flow of $1,458,500. The asset will be depreciated using the straight-line method over a five-year life and is expected to have no salvage value. Divisional performance is measured using ROI with beginning-of-year net book values in the denominator. The company's cost of capital is 7 percent. Ignore taxes. Required: a. What is the divisional ROI before acquisition of the new asset? b. What is the divisional ROI in the first year after acquisition of the new asset? Note: For all requirements, enter your answers as a percentage rounded to 1 decimal place (i.e., 32.1). a. ROI before acquisition b. ROI after acquisition % %The Singer Division of Patio Enterprises currently earns $2.34 million and has divisional assets of $19.5 million. The division manager is considering the acquisition of a new asset that will add to profit. The investment has a cost of $3,375,000 and will have a yearly cash flow of $840,000. The asset will be depreciated using the straight-line method over a six-year life and is expected to have no salvage value. Divisional performance is measured using ROI with beginning-of-year net book values in the denominator. The company’s cost of capital is 9 percent. Ignore taxes. The division manager learns that he has the option to lease the asset on a year-to-year lease for $740,000 per year. All depreciation and other tax benefits would accrue to the lessor. Required: a. What is the division's residual income before considering the project? b. What is the division's residual income if the asset is purchased? c. What is the division's residual income if the asset is leased?The Plastics Division of Minock Manufacturing currently earns $2.53 million and has divisional assets of $22 million. The division manager is considering the acquisition of a new asset that will add to profit. The investment has a cost of $5,514,000 and will have a yearly cash flow of $1,470,500. The asset will be depreciated using the straight-line method over a five-year life and is expected to have no salvage value. Divisional performance is measured using ROI with beginning-of-year net book values in the denominator. The company’s cost of capital is 7 percent. Ignore taxes. Required: What is the divisional ROI before acquisition of the new asset? What is the divisional ROI in the first year after acquisition of the new asset? Note: For all requirements, enter your answers as a percentage rounded to 1 decimal place (i.e., 32.1).
- The Singer Division of Patio Enterprises currently earns $3.28 million and has divisional assets of $20.5 million. The division manager is considering the acquisition of a new asset that will add to profit. The investment has a cost of $3,417,000 and will have a yearly cash flow of $850,500. The asset will be depreciated using the straight-line method over a six-year life and is expected to have no salvage value. Divisional performance is measured using ROI with beginning-of-year net book values in the denominator. The company's cost of capital is 13 percent. Ignore taxes. The division manager learns that he has the option to lease the asset on a year-to-year lease for $747,000 per year. All depreciation and other tax benefits would accrue to the lessor. Required: a. What is the division's residual income before considering the project? b. What is the division's residual income if the asset is purchased? c. What is the division's residual income if the asset is leased? (Enter your…A division is considering the acquisition of a new asset that will cost $2,960,000 and have a cash flow of $790,000 per year for each of the four years of its life. Depreciation is computed on a straight-line basis with no salvage value. Ignore taxes. Required: a. & b. What is the ROI for each year of the asset's life if the division uses beginning-of-year asset balances and net book value for the computation? What is the residual income each year if the cost of capital is 8 percent? (Enter "ROI" answers as a percentage rounded to 1 decimal place (i.e., 32.1). Negative amounts should be indicated by a minus sign.) Year Investment Base ROI Residual Income 1 $2,960,000 % 2 % 3 % 4 %A division is considering the acquisition of a new asset that will cost $2,520,000 and have a cash flow of $790,000 per year for each of the four years of its life. Depreciation is computed on a straight-line basis with no salvage value. Ignore taxes. Required: a. & b. What is the ROI for each year of the asset's life if the division uses beginning-of-year asset balances and net book value for the computation? What is the residual income each year if the cost of capital is 8 percent? (Enter "ROI" answers as a percentage rounded to 1 decimal place (i.e., 32.1). Negative amounts should be indicated by a minus sign.) Investment Residual Income Year ROI Base $ 2,520,000 1 % 2 % 3 % 4 %
- A division is considering the acquisition of a new asset that will cost $2,590,000 and have a cash flow of $730,000 per year for each of the four years of its life. Depreciation is computed on a straight-line basis with no salvage value. Ignore taxes. Required: a. & b. What is the ROI for each year of the asset's life if the division uses beginning-of-year asset balances and net book value for the computation? What is the residual income each year if the cost of capital is 8 percent? (Enter "ROI" answers as a percentage rounded to 1 decimal place (i.e., 32.1). Negative amounts should be indicated by a minus sign.)A division is considering the acquisition of a new asset that will cost $730,000 and have a cash flow of $281,000 per year for each of the four years of its life. Depreciation is computed on a straight-line basis with no salvage value. Ignore taxes. a. What is the ROI for each year of the asset's life if the division uses beginning-of-year asset balances and net book value for the computation?ABC, Inc is considering launching a new product which incurred $2.5 million in Research and Development expenses over the last year. The company will spend $1.8 million to acquire the equipment necessary for the manufacture of the new productThe equipment will last for 15 years and have a salvage value of $35,000. It will be depreciated to zero over 10 years using straight line depreciation. The company will also have an increase of $250,000 in accounts receivable and a decrease of $75,000 in accounts payable. The company anticipates to produce 100.000 units every year for the next 15 years and sell the units for $4 per unit The variable costs are $0.25 per unit and the annual fixed costs are projected to be $ 10,000 year. The company has a target capital structure of 40% debt and 60% equityThe company's outstanding bonds have a yield to maturity of 5.5% and the company's tax rate is 30%. The company has a beta of 1.4 , the risk free rate is 2% and the market risk 6% Answer the…