Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,680,000; the new one will cost, $2,027,000. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $450,000 after five years. The old computer is being depreciated at a rate of $360,000 per year. It will be completely written off in three years. If we don't replace it now, we will have to replace it in two years. We can sell it now for $558,000; in two years, it will probably be worth $162,000. The new machine will save us $378,000 per year in operating costs. The tax rate is 21 percent, and the discount rate is 12 percent.

Alliance Manufacturing Company is considering the purchase of a new automated drill press to replace an older one. The machine now in operation has a book value of zero and a salvage value of zero. However, it is in good working condition with an expected life of 10 additional years. The new drill press is more efficient than the existing one and, if installed, will provide an estimated cost savings (in labor, materials, and maintenance) of $6,000 per year. The new machine costs $25,000 delivered and installed. It has an estimated useful life of 10 years and a salvage value of $1,000 at the end of this period. The firm’s cost of capital is 14 percent, and its marginal income tax rate is 40 percent. The firm uses the straight-line depreciation method. Complete the following table to compute the net present value (NPV) of the investment. (Hint: Remember that, in Year 10, Alliances also receives the salvage value of the machine.) Year Cash Flow PV Interest Factor at 14%…

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Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $321,000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $1,710,000. The cost of the machine will decline by $106,000 per year until it reaches $1,180,000, where it will remain. If your required return is 13 percent, calculate the NPV today. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV If your required return is 13 percent, calculate the NPV if you wait to purchase the machine until the indicated year. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $435,000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $2.8 million. The cost of the machine will decline by $215,000 per year until it reaches $2.155 million, where it will remain.    If your required return is 9 percent, calculate the NPV today. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)       If your required return is 9 percent, calculate the NPV if you wait to purchase the machine until the indicated year. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)         Should you purchase…

The ABC Corporation is considering purchasing a machine to manufacture mobile phones. The purchase of this machine will cause an increase in earnings before depreciation and taxes of $280,000 per year. The machine has a purchase price of $500,000 and it would cost an additional $20,000 to install this machine properly. In addition, the proper operation of this machine needs an increase of working capital of $30,000. The machine has an expected life of 5 years, and it will have a salvage value of $70,000. The company uses straight-line depreciation method; it faces a 25% marginal tax rate and requires a rate of return of 8% for this project. Should ABC Corporation accept the project? Elaborate your rationale and show your calculation steps.

Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $321,000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $1,710,000. The cost of the machine will decline by $106,000 per year until it reaches $1,180,000, where it will remain. If your required return is 13 percent, calculate the NPV today. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $ 31,824.16 If your required return is 13 percent, calculate the NPV for the following years. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. A negative answer should be indicated by a minus sign.) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 NPV

Alliance Manufacturing Company is considering the purchase of a new automated drill press to replace an older one. The machine now in operation has a book value of zero and a salvage value of zero. However, it is in good working condition with an expected life of 10 additional years. The new drill press is more efficient than the existing one and, if installed, will provide an estimated cost savings (in labor, materials, and maintenance) of $6,000 per year. The new machine costs $25,000 delivered and installed. It has an estimated useful life of 10 years and a salvage value of $1,000 at the end of this period. The firm’s cost of capital is 14 percent, and its marginal income tax rate is 40 percent. The firm uses the straight-line depreciation method.a. What is the net cash flow in year 0 (i.e., initial outlay)?b. What are the net cash flows after taxes in each of the next 10 years?c. What is the NPV of the investment?d. Should Alliance replace its existing drill press?

All American Telephones Inc. is considering the production of a new cell phone. The project will require an investment of $13 million. If the phone is well received, the project will produce cash flows of $8 million a year for 3 years, but if the market does not like the product, the cash flows will be only $1 million per year. There is a 50% probability of both good and bad market conditions. All American can delay the project a year while it conducts a test to determine whether demand will be strong or weak. The delay will not affect the dollar amounts involved for the project's investment or its cash flows-only their timing. Because of the anticipated shifts in technology, the 1-year delay means that cash flows will continue only 2 years after the initial investment is made. All American's WACC is 9%. What's the NPV without waiting? What's the NPV of waiting 1 year?

The Adderley Corporation is considering investing in a new machine that has an estimated life of three years. The cost of the machine (in 5 millions) is $500 and the machine will be depreciated straight line over its three-year life to a residual value of $0. The machine will result in sales of 300 million widgets in year 1 with future sales estimated to grow by 10% per year. The price per widget that Adderley will charge its customers is $19 and is to remain constant over the three years. The widgets have a cost per unit to manufacture of $7 each. Installing the machine and the resulting increase in manufacturing capacity will require an increase in various net working capital accounts. It is estimated that the company will need to hold 3% of its annual revenues in cash, 4% of its annual revenues in accounts receivable, 13% of its annual revenues in inventory, but will also benefit from trade financing (ie, accounts payable) equal to 6% of its annual revenues. The firm is in the 28%…