Saint John River Shipyard's welding machine is 15 yearsold, is fully depreciated, and has no salvage value.However, even though it is old, it is still functional asoriginally designed and can be used for quite a whilelonger. A new welder will cost $182, 500 and have anestimate life of 8 years with no salvage value. The newwelder will be much more efficient, however, and thisenhanced efficiency will increase annual cash flowsbefore taxes (not including any CCA tax shield effects)from $27,000 to $74,000 per year. The new welder fallsinto Class 43 with a CCA rate of 30%. The applicablecorporate tax rate is 25%, and the project cost ofcapital is 12%. What is the NPV if the firm replaces theold welder with the new one?

Net Present Value (NPV) is a financial measure used to analyze the profitability of an investment by…

Answered: Saint John River Shipyard's welding…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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15) Although the Chen Company's milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $114,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $19,700 per year. It would have zero salvage value at the end of its life. The project cost of capital is 12%, and its marginal tax rate is 25%. Should Chen buy the new machine? Do not round intermediate calculations. Round your answer to the nearest cent. Negative value, if any, should be indicated by a minus sign. NPV: $ Chen -Select-should shouldn't Item 2 purchase the new machine.
A utility company is considering adding a second feedwater heater to its existing system unit to increase the efficiency of the system and thereby reduce fuel costs. The 150-MW unit will cost $1,650,000 and has a service life of 25 years. The expected salvage value of the unit is considered negligible. With the second unit installed, the efficiency of the system will improve from 55% to 56%. The fuel cost to run the feedwater is estimated at $0.05 kWh. The system unit will have a load factor of 85%, meaning that the system will run 85% of the year. Determine the equivalent annual worth of adding the second unit with an interest rate of 12%. Oa) $1,603,098 b) $12,573,321 Oc) $1,813,473 d) None of these
note: can you help me answer the question for a, b and c?Muthusamy Curry Mills (MCM) is considering the purchase of a new milling equipment to replace an existing one that has a book value of $3,000 and can be sold for $1,500. The old machine is being depreciated on a straight-line basis and its estimated salvage value 3 years from now is zero. The new machine will reduce costs (before taxes) by $7,000 per year. It has a 3-year life; with an installed cost of $14,000; and it can be sold for an expected $2,000 at the end of the third year. The new machine would be depreciated over its 3-year life using the MACRS method. The applicable depreciation rates are as follows: Year 1: 33% Year 2: 45% Year 3: 15% Year 4: 7% Assume a 40% tax rate and a cost of capital of 16%. a. The initial investment associated with the replacement of the old milling equipment by the new one is? b. The incremental operating cash flows associated with the proposed replacement in Year 1 is? c. The…
A certain company is considering the use of a concrete electric pole in the expansion of its power distribution lines. A concrete pole cost 18,000 each and will last 20 years. The company is presently using wooden poles which cost 12,000 per pole and will last 10 years. Assume annual taxes amount to 1 percent of first cost and zero salvage value in both cases. Money is worth 12 percent. 1.1. What is the amount of annual depreciation each pole? 1.2. Excluding interest on capital, what is the annual cost of the wooden pole?
The management of Niagra National Bank is considering an investment in automatic teller machines. The machines would cost $124,200 and have a useful life of seven years. The bank’s controller has estimated that the automatic teller machines will save the bank $27,000 after taxes during each year of their life (including the depreciation tax shield). The machines will have no salvage value. Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: Compute the payback period for the proposed investment. (Round your answer to 1 decimal place.)
Which values am I supposed to use for the depreciation?
A project has to sell a machine that is obsolete. The market department finds a buyer who is willing to pay $100, 000 for the machine. The machine was purchased 4 years ago for $1.1 million. The accounting department notes that the depreciation method for this machine is straight line, and the machine will be depreciated to zero over a five year time period after purchase. What is the machine's after - tax salvage value? Tax rate is 21%. Question 1 options: $1, 635.24 $2, 314.05 $142,000.00 - $2,784.62$289.26
ABC company is considering replacing their old manual loading machine with an automatic loading machine. The manual machine cost $300,000 three years ago, and is being depreciated over 10 years straight line depreciation, with no salvage value. If ABC replaces the manual machine, the new automatic machine will cost $400,000 and have a useful life of 10 years. This will also be depreciated on a straight line basis to zero. As a result of this new machine, there will be pretax savings of $130,000 in labour costs and $25,000 in other cash expenses annually. If the automatic machine is purchased, the old machine will immediately be sold at a price of $280,000. The company has already spent $15,000 researching the costs associated with this decision. The company's tax rate is 40% and no inflation is expected. The company's cost of capital is 7%. Calculate the net present value of this decision using a financial calulator
(Ignore income taxes in this problem.) Sam Corporation is investigating automating a process by purchasing a new machine for $483,000 that would have a 7 year useful life and no salvage value. By automating the process that would increase sales revenues by $438,000 per year and cash operating expenses by $258.000 per year. The company's current equipment would be sold for scrap now, yielding $29,000. The annual depreciation on the new machine would be $69.000. Required: Determine the simple rate of return on the investment to the nearest tenth of a percent. Show your work!
although the Chen Company's milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $120,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $18,200 per year. It would have zero salvage value at the end of its life. The project cost of capital is 12%, and its marginal tax rate is 25%. Should Chen buy the new machine? Do not round intermediate calculations. Round your answer to the nearest cent. Negative value, if any, should be indicated by a minus sign.
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