Startle Corporation wants to purchase a new production machine. They currently have an old machine, which is operable for five more years and is expected to have a zero-disposal value at the end of five years. If the company buys the new machine, the old machine will be sold now for $65,000 (book value is $73,000). The new machine will cost $600,000 and will be depreciated for tax purposes on a straight-line basis over its useful life of 5 years. The new machine will not have a salvage value and will not be sold after its useful life. An additional cash investment in working capital of $50,000 will be required if the new machine is purchased. The investment is expected to generate $75,000 in before tax cash net inflows during the first year of operation. The expected before tax cash net inflow for years two through five is $220,000 each year. These cash flows do not include depreciation and are recognized at the end

Startle Corporation wants to purchase a new production machine. They currently have an old machine, which is operable for five more years and is expected to have a zero-disposal value at the end of five years. If the company buys the new machine, the old machine will be sold now for $65,000 (book value is $73,000). The new machine will cost $600,000 and will be depreciated for tax purposes on a straight-line basis over its useful life of 5 years. The new machine will not have a salvage value and will not be sold after its useful life. An additional cash investment in working capital of $50,000 will be required if the new machine is purchased. The investment is expected to generate $75,000 in before tax cash net inflows during the first year of operation. The expected before tax cash net inflow for years two through five is $220,000 each year. These cash flows do not include depreciation and are recognized at the end

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 9P

See similar textbooks

Similar questions

Trestle Corporation wants to purchase a new finishing machine. They currently have an old machine, which is operable for five more years and is expected to have a zero-disposal value at the end of five years. If the company buys the new machine, the old machine will be sold now for $95,000 (book value is $75,000). The new machine will cost $635,000 and will be depreciated for tax purposes on a straight-line basis over its useful life of 5 years. The new machine will not have a salvage value and will not be sold after its useful life. An additional cash investment in working capital of $25,000 will be required if the new machine is purchased. The investment is expected to net $80,000 in before tax cash inflows during the first year of operation and $235,000 each additional year of use. These cash flows do not include depreciation and are recognized at the end of each year. The working capital investment will not be recovered at the end of the asset's life. The company's tax rate is 32%.
McPherson Company must purchase a new milling machine. The purchase price is $50,000, including installation. The machine has a tax life of 5 years, and it can be depreciated according to the following rates. The firm expects to operate the machine for 4 years and then to sell it for $12,500. If the marginal tax rate is 40%, what will the after-tax salvage value be when the machine is sold at the end of Year 4? Depreciation Rate Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 a. $10,900 b. $9,837 c. $8,878 d. $9,345 e. $10,335 0.20 0.32 0.19 0.12 0.11 0.06
The Golden Corporation is considering selling one of its old assembly machines. The machine, purchased for $30,000 3 years ago, had an expected life of 6 years and an expected salvage value of zero. Assume Evans uses simplified straight-line depreciation and could sell this machine for $8,000. Also assume Evans has a 34 percent marginal tax rate. What would be the taxes associated with this sale?
Acefacto Inc., has asked for you to calculate the after-tax salvage value of an asset it plans on using in a construction project. The project will be depreciated straight line to a value of $670,000 at the end of the project's and assets ten year life. Ace's marginal tax rate is 31%. The firm will have to pay $8,802,175 to buy the asset. You have estimated that they could sell the asset for $595,641 to a Brazilian firm at the end of the project. Answer in dollars and cents.
Acefacto Inc., has asked for you to calculate the after-tax salvage value of an asset it plans on using in a construction project. The project will be depreciated straight line to a value of$670,000at the end of the project's and assets ten year life. Ace's marginal tax rate is32%. The firm will have to pay$8,047,675to buy the asset. You have estimated that they could sell the asset for$787,309to a Brazilian firm at the end of the project. Answer in dollars and cents.
Builtrite is considering purchasing a new machine that would cost $60,000 and the machine would be depreciated (straight line) down to $0 over its five year life. At the end of five years it is believed that the machine could be sold for $15,000. The machine would increase EBDT by $42,000 annually. Builtrite’s marginal tax rate is 34%. What is the TCF associated with the purchase of this machine? $5,100 $7,500 $0 $9,900
Marshall-Miller & Company is considering the purchase of a new machine for $60,000, installed. The machine has a tax life of 5 years, and it can be depreciated according to the depreciation rates below. The firm expects to operate the machine for 5 years and then to sell it for $18,500. If the marginal tax rate is 40%, what will the after-tax salvage value be when the machine is sold at the end of Year 5? Complete the table -THIS QUESTION WILL BE ON THE FINAL EXCEPT WITH DIFFERENT NUMBERS. You will fill in the entire table. I am giving you a few numbers to help you check your work Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 MACRS % 20% 32% 19% 12% 11% 6% 7,200 Depreciation expense Book value 48,000 3,600 $0 If we sell at the end of year 5 for $18,500 then determine if we have a gain or a loss and the appropriate tax consequence Gain of 14,900 tax owed is $5,960
Ilana Industries, Inc., needs a new lathe. It can buy a new high-speed lathe for $1.4 million. The lathe will cost $49,000 per year to run, but it will save the firm $144,000 in labor costs and will be useful for 10 years. Suppose that for tax purposes, the lathe will be depreciated on a straight-line basis over its 10-year life to a salvage value of $450,000. The actual market value of the lathe at that time also will be $450,000. The discount rate is 10%, and the corporate tax rate is 20%. What is the NPV of buying the new lathe? (A negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to 2 decimal places.)
Your facility is undergoing a major expansion, which will require significant capitalinvestment into new machinery. The total cost of the machinery will be $7.2 Million, and theywill be purchased outright immediately. This machinery is considered a 7-year MACRSasset. However, you expect to use it for only six years before selling it for $1.5 Million. What is the gains tax owed on the machinery sale at the end of year 6 if the tax rate is 21%? a. $45,108b. $169,692c. $315,000d. $0
← Your company has purchased equipment (for $50.000) that will redoce materials and labor costs by $12,000 each year for N years. After N years, there will be no further need for the machine, and because the machine is specially designed, it will have no MV at any time. The RS, however, has ruled that you must depreciate the equipment on a SL basis with a tax life of five years. If the effective income tax rate is 35%, what is the minimum number of years your fem must operate the equipment to earn 10% per year after taxes on its investment? Click the icon to view the interest and annuity table for discrete compounding when the MARR is 10% per year Your firm must operate the equipment for minimum years to earn 10% per year after taxes on its investment (Round your answer up to the nearest whole number)
Nodhead College needs a new computer. It can either buy it for $250,000 or lease it from Compulease. The lease terms require Nodhead to make 6 annual payments (prepaid) of $58,000. Nodhead pays no tax. Compulease pays tax at 30%. Compulease can depreciate the computer for tax purposes at a CCA rate of 25%, and will close the asset pool at the end of the sixth year. The first CCA tax saving is available in year 0. The computer will have no residual value at the end of year 5. The interest rate is 9%. a. What is the NPV of the lease for Nodhead College? (Round your answer to the nearest dollar. Use minus sign to enter negative NPV, if any.) NPV$ b. What is the NPV for Compulease? (Round your answer to the nearest dollar. Use minus sign to enter negative NPV, if any.) NPV$ c. What is the overall gain from leasing? (Round your answer to the nearest dollar. Use minus sign to enter loss, if any.) Overall gain (loss)
Your firm needs a computerized machine tool lathe which costs $55,000 and requires $12,500 in maintenance for each year of its 3-year life. After three years, this machine will be replaced. The machine falls into the MACRS 3-year class life category, and neither bonus depreciation nor Section 179 expensing can be used. Assume a tax rate of 21 percent and a discount rate of 13 percent.Calculate the depreciation tax shield for this project in year 3. (Round your answer to 2 decimal places.) Depreciation tax shield?______