Complete the following table and compute the incremental cash flows associated with the replacement of the old equipment with the new equipment.Year 050,0002,000Year 1Year 2The net present value (NPV) of this replacement project is:O $55,903O $64,288O $67,084O $41,927Year 3Year 4.Year 5Year 6$60,000 molsS▪itSTENOYourThe new equipment will have a cost of $1,800,000, and it is eligible for 100% bonus depreciation so it will be fully depreciated at1-0.The old machine was purchased before the new tax law, so it is being depreciated on a straight-line basis. It has a book value of$200,000 (at year 0) and four more years of depreciation left ($50,000 per year).The new equipment will have a salvage value of 50 at the end of the project's life (year 6). The old machine has a current salvagevalue (at year 0) of $300,000.Replacing the old machine will require an investment in net operating working capital (NOWC) of $60,000 that will be recovered at theand of the project's life (year 6).The new machine is more efficient, so the firm's incremental earnings before interest and taxes (EBIT) will increase by a total of$400,000 in each of the next six years (years 1-6). Hint: This value represents the difference between the revenues and operatingcosts (including depreciation expense) generated using the new equipment and that earned using the old equipment.The project's cost of capital is 13%.The company's annual tax rate is 25%Complete the following table and compute the incremental cash flows associated with the replacement of the old equipment with the new equipment.InitiallovestmentEBITTaxesADepreciation+Salvagevaluetax onsalvage-NOWCRecaptureYear O-$1,350,000$50,000Year 1=Year 2Year 3Year 4Year 5

Net present value is determined by deducting the initial investment from the current value of cash…

Answered: The net present value (NPV) of this…

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter11: Long-term Assets

Section: Chapter Questions

Problem 8PB: Montello Inc. purchases a delivery truck for $25,000. The truck has a salvage value of $6,000 and is...

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Montello Inc. purchases a delivery truck for $25,000. The truck has a salvage value of $6,000 and is expected to be driven for 125,000 miles. Montello uses the units-of-production depreciation method, and in year one it expects to use the truck for 26,000 miles. Calculate the annual depreciation expense.
Montello Inc. purchases a delivery truck for $25,000. The truck has a salvage value of $6,000 and is expected to be driven for 125,000 miles. Montello uses the units-of-production depreciation method, and in year one the company expects the truck to be driven for 26,000 miles; in year two, 30,000 miles; and in year three, 40,000 miles. Consider how the purchase of the truck will impact Montellos depreciation expense each year and what the trucks book value will be each year after depreciation expense is recorded.
Alfredo Company purchased a new 3-D printer for $900,000. Although this printer is expected to last for ten years, Alfredo knows the technology will become old quickly, and so they plan to replace this printer in three years. At that point, Alfredo believes it will be able to sell the printer for $15,000. Calculate yearly depreciation using the double-declining-balance method.
Your company has purchased a large new trucktractor for over-the-road use (asset class 00.26). It has a cost basis of $179,000. With additional options costing $14,000, the cost basis for depreciation purposes is $193,000. Its MV at the end of six years is estimated as $36,000. Assume it will be depreciated under the GDS: a. What is the cumulative depreciation through the end of year two? b. What is the MACRS depreciation in the second year? c. What is the BV at the end of year one? Click the icon to view the partial listing of depreciable assets used in business. Click the icon to view the GDS Recovery Rates (rk). a. The cumulative depreciation through the end of year two is $ (Round to the nearest dollar.) b. The MACRS depreciation in the second year is $ (Round to the nearest dollar.) c. The BV at the end of year one is $ (Round to the nearest dollar.)
Nozark Corp. is now in the final year of a project. The equipment originally cost $9,179, and the asset has been has been depreciated on a straight-line basis to a book value of $736. Nozark can sell the used equipment for $2,448, and its tax rate is 30%. The equipment's net after-tax salvage value is $_________. In other words, find the net after-tax cash flow effect of selling the equipment. Do not round any intermediate work. Round your *final* answer to 2 decimal places (example: 12.34567 = 12.35). Do not enter the $ sign.
Your company has purchased a large new trucktractor for over-the-road use (asset class 00.26). It has a cost basis of $173,000. With additional options costing $14,000, the cost basis for depreciation purposes is $187,000. Its MV at the end of four years is estimated as $42,000. Assume it will be depreciated under the GDS: a. What is the cumulative depreciation through the end of year two? b. What is the MACRS depreciation in the third year? c. What is the BV at the end of year one?
LLED has purchased a new chip making machine for $1,500,000 with a salvage value of $100,000in 10 years. The LLED company is trying to determine the best method of depreciation. Create atable and calculate the deprecation amount for each year using straight line, double decliningbalance, and MACRS (10 yr property class). For SL and DDB we will not depreciate below thesalvage value. Using a MARR of 10% calculate the present worth of the depreciation deductions.Which is the preferred method of depreciation for LLED?
Your company has purchased a large new truck-tractor for over-the-road use (asset class 00.26). It has a cost basis of $180,000. With additional options costing $15,000, the cost basis for depreciation purposes is $195,000. Its MV at the end of five years is estimated as $40,000. Assume it will be depreciated under the GDS: Solve, a. What is the cumulative depreciation through the endof year three? b. What is the MACRS depreciation in the fourth year? c. What is the BV at the end of year two?
An oil refinery has decided to purchase some new drilling equipment for $550,000. The equipment will be kept for 10 years before being sold. The estimated SV for depreciation purposes is to be $25,000. Use this information to solve, If SL depreciation is used and the equipment is sold for $35,000 at the end of 10 years, the taxable gain on the disposal of the equipment is(a) $35,000 (b) $25,000 (c) $15,000 (d) $10,000.
The Loann Le Milling Company is going to purchase a new piece of testing equipment for $28,000 and a new machine for $53,000. The equipment falls in the three-year property class, and the machine is in the five-year class. What annual depreciation will the company be able to take on the two assets?
The Dauten Toy Corporation currently uses an injection molding machine that was purchased prior to the new tax legislation. The machine is being depreciated on a straight- line basis, and it has 6 years of remaining life. Its current book value is $2,400, and it can be sold for $2,600 at this time. Thus, the anual depreciation expense is $2,400/6= $400 per year. If the old machine is not replaced, it can be sold for $500 at the end of its useful life. Dauten offered a replacement machine which has a cost of $10,000, an estimated useful life of 6 years, and an estimated salvage value of $800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase. The replacement machine would permit an output expansion, so sales would arise by $1,000 per year; even so, the new machine's much greater efficiency would cause operating expenses simultaneously increase by $500. Dauten's marginal federal-plus- state tax rate is 25%, and its WACC is 11% What is the NPV of the…
6) A company is considering purchasing a new automated machine that is expected to generate an additional income of $125,000 annually. The equipment will have an initial cost of $187,500 and estimated annual operating and maintenance costs of $50,000. Its estimated salvage value at the end of its useful life of 4 years will be $37,500. The equipment is a MACRS-GDS 3-year property for calculating depreciation deductions. The effective tax rate is 35%. For this new machine, determine the after-tax cash flow for each year of operation. (Round off values to the nearest dollar) ΕΟΥ BTCF a) 0 1 2 3 4 MACRS-GDS Deduction Taxable Income Tax ATCF b) (8 points) If the after-tax MARR is 10% per year compounded annually, compute the PW of the after-tax cash flows. Based on this PW, would you recommend the purchase of this new equipment?

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The net present value (NPV) of this replacement project is: O $55,903 O $64,288 O167,084 O $41,927