The Lesseig Company has an opportunity to invest in one of two mutually exclusive machines that will produce a product the company will need for the next 8 years. Machine A hasan after-tax cost of $9.9 million but will provide after-tax inflows of $4.2 million per year for 4 years. If Machine A were replaced, its after-tax cost would be $11.8 million due toinflation and its after-tax cash inflows would increase to $4.5 million due to production efficiencies, Machine B has an after-tax cost of $13.1 million and will provide after-tax inflowsof $3.6 million per year for 8 years. If the WACC is 7%, which machine should be acquired? Explain. Enter your answers in millions. For example, an answer of $10,550,000 shouldbe entered as 10.55. Do not round intermediate calculations. Round your answers to two decimal places.Machine -Select- is the better project and will increase the company's value by $millions, rather than the smillions created by Machine -Select-.

Machine A:Initial investment = $9.9 million Cashflow for first 4 years = $4.2 million Investment @…

Answered: The Lesseig Company has an opportunity…

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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Oriole Corporation is considering adding a new product line. The cost of the factory and equipment to produce this product is $1,700,000. Company management expects net cash flows from the sale of this product to be $630,000 in each of the next eight years. If Oriole uses a discount rate of 11 percent for projects like this, what is the net present value of this project? (Round intermediate calculations to 5 decimal places, e.g. 0.42354. Round answer to O decimal places, e.g. 52.25. Enter negative amounts using negative sign e.g. -45.25.) NPV $ 36695.55 What is the internal rate of return? (Round answer to 2 decimal places, e.g. 52.50.) Internal rate of return %
although the Chen Company's milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $120,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $18,200 per year. It would have zero salvage value at the end of its life. The project cost of capital is 12%, and its marginal tax rate is 25%. Should Chen buy the new machine? Do not round intermediate calculations. Round your answer to the nearest cent. Negative value, if any, should be indicated by a minus sign.
Ilana Industries Incorporated needs a new lathe. It can buy a new high-speed lathe for $1 million. The lathe will cost $35,000 per year to run, but it will save the firm $125,000 in labor costs and will be useful for 10 years. Suppose that, for tax purposes, the lathe is entitled to 100% bonus depreciation. At the end of the 10 years, the lathe can be sold for $100,000. The discount rate is 8%, and the corporate tax rate is 21%. What is the NPV of buying the new lathe? Note: 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.
A project requires purchase of machinery for $150,000. The project generates an annual after-tax operating income of $10,000. The machine's expected useful life is 8 years with no salvage value at the end of its useful life. The required return for the project is 10%. The CCA rate for the machines is 20%. The company's marginal income tax rate is 40%. What is the PV of after-tax cash flows?
Daily Enterprises is purchasing a $10.2 million machine. It will cost $51,000 to transport and install the machine. The machine has a depreciable life of five years and will have no salvage value. The machine will generate incremental revenues of $3.9 million per year along with incremental costs of $1.5 million per year. If Daily's marginal tax rate is 21%, what are the incremental earnings (net income) associated with the new machine? The annual incremental earnings are $ (Round to the nearest dollar.)
Although the Chen Company's milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $100,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $18,400 per year. It would have zero salvage value at the end of its life. The project cost of capital is 10%, and its marginal tax rate is 25%. Should Chen buy the new machine? Do not round intermediate calculations. Round your answer to the nearest cent. Negative value, if any, should be indicated by a minus sign. NPV: $
Daily Enterprises is purchasing a $10.4 million machine. It will cost $46,000 to transport and install the machine. The machine has a depreciable life of five years using straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.4 million per year along with incremental costs of $1.5 million per year. Daily's marginal tax rate is 21%. You are forecasting incremental free cash flows for Daily Enterprises. What are the incremental free cash flows associated with the new machine? The free cash flow for year 0 will be $10,446,000. (Round to the nearest dollar.) The free cash flow for years 1-5 will be $ (Round to the nearest dollar.)
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Laurel’s Lawn Care Ltd., has a new mower line that can generate revenues of $135,000 per year. Direct production costs are $45,000, and the fixed costs of maintaining the lawn mower factory are $17,500 a year. The factory originally cost $0.90 million and is being depreciated for tax purposes over 20 years using straight-line depreciation. Calculate the operating cash flows of the project if the firm’s tax bracket is 25%.
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The Lesseis Company has an opportunity to invest in one of two mutally exclusive machines that will produce a product the company will need for the next 8 years Machine A has an after-tax cost of $8 million but will provide after-tux inflows of $4.9 million per year for 4 years. If Machine A were replaced, its after-tax cost would be million $8.7 million due to inflation and its after-tax rash inflows would increase to $5,1 million due to production efficiencies. Machine B has an after-tax cost of $13.2 million and will provide after- tax inflows of $4,5 million for 8 years. per year If the WACC is 8%, which machine should be acquired? Enter your answers in millions, For example, on answer of $10, 550, 000 should be entered as 10.55. Do not rand intermediate calculations. Round your answers to two decimal places. millines millians, rather millions created by Machine Machine A is the better project and will increase the company's value by $ then the $ B.
Consider a machine that costs P20,000 and has a five years useful life. At the end of the five years, it can be sold for P4,000 after tax adjustment. The annual operating and maintenance (O&M) costs are about P50o. If the firm could earn an after-tax revenue of P5,000 per year with this machine, should it be purchased at an interest rate of 10%?

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