A Moving to another question will save this response.Question 14A project to replace an old machine with a new one is under consideration. The new machine costs $1500 and requires an additional working ca$750 salvage value. Calculate the Initial Outlay of this replacement project assuming the book value of the old asset is $1500. The firm's marginaO $1,912.50O $337.50O $1,837.50O $1,087.50O None of the listed choices is correctA Moving to another question will save this response.MacBook Airsc88 FAF1F2F3F5F6@#$&3.4567QWTYSDCVoptioncommand Question 14 of 17 >6 pointsSave Answernsideration. The new machine costs $1500 and requires an additional working capital investment of $750. The old machine is expected to have aent project assuming the book value of the old asset is $1500. The firm's marginal tax rate is 55%.« < Question 14 of 17 > »Close WindowMacBook AirF4トトF6F9F12F7F8F10F11&*+589{Y1Kвcommandoption.. ..

Marginal tax rate 55% Book value of old asset 1500 Salvage value of old machine 750 Loss on…

sideration. The new machine costs $1500 and requires an additional working capital investment of $750. The old machine is expected to have a ent project assuming the book value of the old asset is $1500. The firm's marginal tax rate is 55%.

sideration. The new machine costs $1500 and requires an additional working capital investment of $750. The old machine is expected to have a ent project assuming the book value of the old asset is $1500. The firm's marginal tax rate is 55%.

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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Quorum Corp. wants to replace a 5-year-old machine with a new machine that is more efficient. The old machine cost $20,000 when new and has a current book value of $8,000. Quorum can sell the old machine for $5,000. The company has a marginal tax rate of 40%. What will be the cash flow impact from the sale of the old machine on the initial outlay for a new machine? a) $3,800 b) $5,000 c) $6,200 d) $8,000
Bowser Company's required rate of return is 14%. The company is considering the purchase of three machines, as indicated below. Consider each machine independently. (Ignore income taxes in this problem.) Required: Machine A will cost $20,000 and will have a useful life of 15 years. Its salvage value will be $1,800, and cost savings are projected at $4,000 per year. Calculate the machine's net present value. How much should Bowser Company be willing to pay for Machine B if the machine promises annual cash inflows of $6,000 per year for eight years? Machine C has a projected life of ten years. What is the machine's internal rate of return if it costs $40,000 and will save 7,000 annually in cash operating costs? Would you recommend to Bowser Company to purchase Machine C? Explain.
The Zeron Corporation wants to purchase a new machine for its factory operations at a cost of $350,000. The investment is expected to generate $225,000 in annual cash flows for a period of four years. The required rate of return is 10%. The new machine is expected to have zero value at the end of the four-year period. What is the net present value of the investment closest to? Would the company want to purchase the new machine? Income taxes are not considered. A) $363,025; yes B) $22,500; no C) $350,000; yes D) $375,650; no
NUBD Co. is considering a new product that will sell for P100 and has a variable cost of P60. Expected volume is 20,000 units. New equipment costing P1,500,000 and having a five-year useful life and no salvage value is needed, and will be depreciated using the straight-line method. The machine has fixed cash operating costs of P200,000 per year. The firm is in the 40% tax bracket and has cost of capital of 12%. Use 5 decimal places for the PV factors. How many units per year the firm must sell for the investment to earn 12% internal rate of return?
Give typing answer with explanation and conclusion
A firm must decide between two silicon layer chip designs from Intel. Their effective income tax rate is 40%, and Straight Line depreciation method is used. If the desired after-tax return on investment is 10% per year, which design should be chosen? State your assumptions. 1. Design A Design B Capital Investment $1,000,000 $2,000,000 Salvage Value at end of life $1,000,000 $1,100,000 Annual revenue less expenses $200,000 $400,000 Useful Life 7years 6 years
firm is considering purchasing a machine that costs $77,000. It will be used for six years, and the salvage value at that time is expected to be zero. The machine will save $41,000 per year in labor, but it will incur $16,000 in operating and maintenance costs each year. The machine will be depreciated according to five-year MACRS. The firm's tax rate is 35%, and its after-tax MARR is 18%. What is the present worth of the project?
A new machine can be purchased for $1,500,000. It will cost $45,000 to ship and $55,000 to install the machine. The new machine will replace an older machine that is fully depreciated and will be sold for $125,000. The firm’s income tax rate is 40%. What is the initial outlay (IO) for the new machine? $1,525,000 $1,600,000 $1,675,000 $1,725,000
You are evaluating a new project that costs $15 million over its 5-year life. Depreciation is straight-line to zero over the life of the project and the salvage value is zero. The project is expected to have the following base case estimates: Unit sales/year: 250,000; Price/unit: $40; VC/unit: $15; FC/year: $900,000. The required return is 14 % and the corporate tax rate is 30%. The firm has no debt. The base case NPV is $946,661.1003. Calculate the sensitivity of the NPV to changes to changes in variable costs/unit
A firm is considering purchasing equipment that will reduce annual costs by P 40,000. The equipment costs P 300,000 and has a salvage value of P 50,000 and a life of 7 yrs. The annual maintenance cost is P 6,000. While not in use by the firm, the equipment can be rented to others to generate an income of P 10,000 per year. If money can be invested for an 8% return, is the firm justified in buying the equipment? Use annual cost method.
A proposed cost-saving device has an installed cost of $700,000. It is in Class 8 (CCA rate=20%) for CCA purposes. It will actually function for five years, at which time it will have no value. There are no working capital consequences from the investment, and the tax rate is 35% a What must the pre-tax cost savings be for us to favour the investment? We require an 10% return (Hint. This one is a variation on the problem of setting a bid price) (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Cost savings b Suppose the device will be worth $98,000 in salvage (before taxes). How does this change your answer? (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit S sign in your response.) Cost savings
Gluon Inc. is considering the purchase of a new high pressure glueball. It can purchase the glueball for $170,000 and sell its old low-pressure glueball, which is fully depreciated, for $30,000. The new equipment has a 10-year useful life and will save $38,000 a year in expenses. The opportunity cost of capital is 11%, and the firm’s tax rate is 21%. What is the equivalent annual saving from the purchase if Gluon can depreciate 100% of the investment immediately?

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