Telstar Communications is going to purchase an asset for $600,000 that will produce $290.000 per year for the next four years in earnings before depreciation and taxes. The asset will be depreciated using the three-year MACRS depreciation schedule in Table 12- 12 (This represents four years of depreciation based on the half-year convention.) The firm is in a 25 percent tax bracket. Fill in the schedule below for the next four years. Year 1 Year 2 Year 3 Year 4 Eamings before depreciation and taxes Depreciation Earmings before taxes Taes Eamings ater taxes Depreciation Cash fow

Telstar Communications is going to purchase an asset for $600,000 that will produce $290.000 per year for the next four years in earnings before depreciation and taxes. The asset will be depreciated using the three-year MACRS depreciation schedule in Table 12- 12 (This represents four years of depreciation based on the half-year convention.) The firm is in a 25 percent tax bracket. Fill in the schedule below for the next four years. Year 1 Year 2 Year 3 Year 4 Eamings before depreciation and taxes Depreciation Earmings before taxes Taes Eamings ater taxes Depreciation Cash fow

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 18E

See similar textbooks

Similar questions

The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $450,000 and the asset will provide the following stream of earnings before depreciation and taxes for the next four years: Use Table 12-12. Year 1 $200,000 Year 2 263,000 90,000 80,000 Year 3 Year 4 The firm is in a 30 percent tax bracket and has a cost of capital of 12 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Calculate the net present value. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.) Net present value
The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $340,000 and the asset will provide the following stream of earnings before depreciation and taxes for the next four years: Use Table 12-12. Year 1 Year 2 Year 3 Year 4 $ 160,000 209,000 75,000 68,000 The firm is in a 35 percent tax bracket and has a cost of capital of 9 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Calculate the net present value. Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places. Net present value b. Under the net present value method, should Summit Petroleum Corporation purchase the asset? O Yes O No
HaulCo is considering the purchase of a truck. Over its five year life, it will provide net revenues of $17,000 per year at an initial cost of $72,000 and a salvage value of $21,000. HaulCo pays 35% in taxes, the CCA rate for trucks is 30%, and the after tax MARR is 12%. (a) What is the after tax annual cost or worth of this purchase? (b) Should HaulCo pursue this project? Why or why not?
Intel Inc is looking to acquire a new equipment for a project that will last for eight years. The after-tax required rate of return of the project is 12% per annum. Intel can borrow at a before-tax interest rate of 10% per annum and buy the equipment outright or lease the equipment from ABC’s Leasing. The applicable corporate tax rate is 28% and the equipment will be fully depreciated to zero over the eight years using a straight-line method. Intel evaluated the lease and decided to buy the equipment by borrowing since the NPV of lease versus borrow-to-buy analysis was estimated to be -$10,000. However, subsequently Intel realised that in the analysis the purchase cost of the equipment had been under-estimated by $20,000, and also the salvage value of the equipment (at the end of the lease term) had been under-estimated by $7,000. Given the correct purchase price and salvage value, which of the following statements now accurately describes Intel’s decision regarding the acquisition of…
Johnny Dear Inc. is examining the possibility of purchasing harvesting machinery for $147,500 that is expected to be sold at the end of 10 years for $500. The machinery will generate benefits of $24,550 per year and will have maintenance costs of $3,203 per year. Johnny Dear Inc. will use an interest rate of 7% and a straight-line depreciation method. Due to the next tax code the company has a flat tax rate of 21%. Calculate the project's after-tax benefit cost ratio. Remember to use two decimal points
A company is evaluating a new 4-year project. The equipment necessary for the project will cost $2,950,000 and can be sold for $660,000 at the end of the project. The asset the 5-year MACRS class. The depreciation percentage each year is 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent and 11.52 percent, respectively. The company's tax rate is 35 percent. What is the aftertax salvage value of the equipment?
XYZ Company plans to invest $1 million in a new plant which is expected to produce a uniform annual net benefit before tax of $300,000 in terms of the base-year dollars over the next 5 years. The plant has a salvage value of $100,000 at the end of 5 years and the depreciation allowance is based on the straight-line depreciation method. The corporate tax rate is 34%, and the after-tax MARR specified by the firm is 10%. determine whether the investment is worthwhile. Year (F/P, i, n) (P/F, i, n) (F/A, i, n) (A/F, i, n) (A/P, i, n) (P/A, i, n) 1. 1000 1. 2100 1. 3310 1. 4641 1. 6105 1. 7716 0. 9091 0. 8264 0. 7513 0. 6830 0. 6209 0. 5645 0. 5132 0. 4665 0. 4241 1. 0000 0. 4762 0. 3021 0. 2155 0. 1638 0. 1296 0. 1054 0. 0874 0. 0736 1. 0000 1. 1000 0. 5762 0. 4021 0. 3155 0. 2638 0. 2296 0. 2054 0. 1874 0. 1736 0. 9091 1. 7355 1 2 2. 1000 3 3. 3100 2. 4869 4 4. 6410 3. 1699 5 6. 1051 3. 7908 7.7156 9. 4872 11. 4359 4. 3553 7 1.9487 4. 8684 8 2. 1436 5. 3349 2. 3579 13. 5795 5. 7590
Brummit Corporation, is evaluating a new 4 year project. The equipment necessary for the project will cost $2.250,000 and can be sold for $291,000 at the end of the project. The asset is in the 5-year MACRS class The depreciation percentage each year is 20.00 percent, 32.00 percent, 19 20 percent, 11.52 percent, and 11 52 percent, respectively. The company's tax rate is 24 percent What is the aftertax salvage value of the equipment? Mutiple Choice O $221360 $291.000 $252.264 $314.472 $267,528
Larson is considering the purchase of manufacturing equipment categorized under the 5-year MACRS scale. The asset will cost $260,000, producing earnings before depreciation and taxes of $92,000 per year for three years and then $41,000 per year for the remaining years. Larson has a tax rate of 19 percent. Assume the cost of capital is 10 percent. What is the anticipated Payback period, Net present value, Internal rate of return, and Profitability index for this equipment? Should this equipment be purchased (please, explain)?
Firm A is considering leasing equipment. The equipment will provide $2.8 million in annual pre-tax cost savings. The cost of leasing is $8.78 million and the equipment will be depreciated straight-line to zero over five years. Assume a tax rate of 21% and a borrowing rate of 7%. Firm B has offered to lease this equipment for payments of $1.95 million per year. Assume that payments for the lease are made at the start of the year. i) What is the maximum lease payment that would be acceptable to Firm A? ii) Suppose now Firm B requires Firm A to pay a $600,000 security deposit at the inception of the lease, and this amount is refunded at the end of the lease. If the lease payment is still $1.95 million. Is it advantageous for Firm A to lease the equipment now?
Engro Incorporation wants to evaluate an acquisition of an equipment worth $200,000. Its marginal tax rate is 40 percent. If purchased, the depreciation of equipment will take place at straight line method. The salvage value of the equipment is assumed to be $20,000 at the end of its useful life of 10 years. If the equipment is purchased, Engro will finance the asset through borrowing from bank at annual before tax cost of 10%. further, if Engro decides to purchase the equipment, it will incur $1000 as annual maintenance expense each year. These expenses would not be incurred if the computer is leased. If leased, Engro can have the equipment at $28000 pre-tax rate per year, which is to be paid at the beginning of each year. Company’s weighted average after tax cost of capital is 12 percent. Compute the net advantage to leasing What alternative, leasing or owning, should be chosen
Manning Corporation is considering a new project requiring a $90,000 investment in test equipment with no salvage value. The project would produce $66,000 of pretax income before depreciation at the end of each ofthe next six years. The company’s income tax rate is 40%. In compiling its tax return and computing its income tax payments, the company can choose between the two alternative depreciation schedules shown in the table.