St. John's Shipyard is considering the replacement of an 8-year old machine that has been fully depreciated and has nosalvage value with a new one that will increase its earnings before depreciation (EBITDA) by $27,000 per year. This newmachine will cost $115,000 and will have an estimated useful life of 8 years with no salvage value. The new machine will bedepreciated using 5-year MACRS which means rates of 20%, 32%, 19%, 12%6, 11%, and 6% during the first six years (andnothing thereafter). The applicable corporate tax rate is 35% and the WACC is 89%. Which of the following statements is thecorrect recommendation?The equipment should not be replaced since the net present value would be less than zeroThe equipment should be replaced because the net present value is $16,739.51The equipment should be replaced because the net present value is $18,505.91D The equipment should be replaced because the net present value is $27,238.30The equipment should be replaced because the net present value is $32,473.74B Colima Communications finance department has collected the following information concerning a proposed project: Salesrevenues should be $1,700,000, operating costs excluding depreciation should be $1,190,000, depreciation expense should be$204,000, and interest expense should be $85,000. The company's tax rate is 20% and its WACC is 9%. What is the project'sfirst year cash flow (CF1)?A $397,800B) $408,000$438,600D) $448,800E $499,210

As per honor code, we can provide solution to only first question, so here we go: NPV calculates…

Answered: St. John's Shipyard is considering the…

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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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.
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Riverview Company is evaluating the proposed acquisition of a new production machine. The machine's base price is $200,000, and installation costs would amount to $28,000. Also, $10,000 in net working capital would be required at installation. The machine will be depreciated for 3 years using simplified straight line depreciation. The machine would save the firm $110,000 per year in operating costs. The firm is planning to keep the machine in place for 5 years. At the end of the fifth year, the machine will be sold for $20,000. Riverview has a cost of capital of 12% and a marginal tax rate of 34%. What is the IRR of the project? 14.1% O 31.3% 9.5% O 28.2% O 19.7%

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