Two investments involving a virtual mold apparatus for producing dental crowns qualify for different property classes. Investment A has a cost of $53,600, lasts 9 years with no salvage value, and costs $150,000 per year in operating expenses. It is in the 3-year property class. Investment B has a cost of $84,500.00, lasts 9 years with no salvage value, and costs $125,000 per year. Investment B, however, is in the 7-year property class. The company marginal tax rate is 25%, and MARR is an after-tax 10%. Based upon the use of MACRS-GDS depreciation, compare the AW of each alternative. What must be Investment B's cost of operating expenses for these two investments to be equivalent? $

Two investments involving a virtual mold apparatus for producing dental crowns qualify for different property classes. Investment A has a cost of $53,600, lasts 9 years with no salvage value, and costs $150,000 per year in operating expenses. It is in the 3-year property class. Investment B has a cost of $84,500.00, lasts 9 years with no salvage value, and costs $125,000 per year. Investment B, however, is in the 7-year property class. The company marginal tax rate is 25%, and MARR is an after-tax 10%. Based upon the use of MACRS-GDS depreciation, compare the AW of each alternative. What must be Investment B's cost of operating expenses for these two investments to be equivalent? $

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 14P

See similar textbooks

Similar questions

Two investments involving a virtual mold apparatus for producing dental crowns qualify for different property classes. Investment A has a cost of $51,300, lasts 9 years with no salvage value, and costs $150,000 per year in operating expenses. It is in the 3-year property class. Investment B has a cost of $76,500.00, lasts 9 years with no salvage value, and costs $125,000 per year. Investment B, however, is in the 7-year property class. The company marginal tax rate is 25%, and MARR is an after-tax 10%. a. Based upon the use of MACRS-GDS depreciation, compare the AW of each alternative. AWA = $ AWB = $ Which should be selected? (Investment A; Investment B) b. What must be Investment B's cost of operating expenses for these two investments to be equivalent? $ Round your answer to 2 decimal places. The tolerance is + 10.
Two investments involving a granary qualify for different property classes.Investment A costs $70,000 with $3,000 salvage value after 16 years and is depreciated as MACRS-GDS in the 10-year property class. Investment B costs $110,000 with a $4,000 salvage value after 16 years and is in the MACRS-GDS 5-year property class. Operation and maintenance for each is expected to be $18,000 and $14,000 per year, respectively. The income-tax rate is 25%, and MARR is 9% after taxes. a. Determine which alternative is less costly, based upon comparison of after-tax annual worth. b. What must the cost of the second (more expensive) investment be for there to be noeconomic advantage between the two?
Freida Company is considering an asset replacement project ofreplacing a control device. This old control device has been fullydepreciated but can be sold for $5,000. The new control device, whichis more automated, will cost $42,000. The new device’s installation andshipping costs will total $16,000. The new device will be depreciatedon a straight-line basis over its 2-year economic life to an estimatedsalvage value of $0. The actual salvage value of this device at the endof 2-year period (That is, the market value of the device at the end of2-year period) is estimated to be $4,000. If the replacement project is accepted, Freida will require an initial working capital investment of$2,200 (that is, adding $2,200 initially to its net working capital).During the 1st year of operations, Freida expects its annual revenue toincrease from $72,800 to $90,000. After the 1st year, revenues fromthe replacement are expected to increase at a rate of $2,800 a year forthe remainder of the project…
Two investments involving a virtual mold apparatus for producing dental crowns qualify for different property classes. Investment A has a cost of$58,500, lasts 9 years with no salvage value, and costs $150,000 per year in operating expenses. It is in the 3-year property class. Investment B has a cost of $87,500, lasts 9 years with no salvage value, and costs $125,000 per year. Investment B, however, is in the 7-year property class. The company income-tax rate is 25% and MARR is an after-tax 10%. Solve, a. Based upon the use of MACRS-GDS depreciation, compare the AW of each alternative to determine which should be selected. b. What must be Investment B’s cost of operating expenses for these two investments to be equivalent?
Freida Company is considering an asset replacement project ofreplacing a control device. This old control device has been fullydepreciated but can be sold for $5,000. The new control device, whichis more automated, will cost $42,000. The new device’s installation andshipping costs will total $16,000. The new device will be depreciatedon a straight-line basis over its 2-year economic life to an estimatedsalvage value of $0. The actual salvage value of this device at the endof 2-year period (That is, the market value of the device at the end of2-year period) is estimated to be $4,000. If the replacement project is accepted, Freida will require an initial working capital investment of$2,200 (that is, adding $2,200 initially to its net working capital).During the 1st year of operations, Freida expects its annual revenue toincrease from $72,800 to $90,000. After the 1st year, revenues fromthe replacement are expected to increase at a rate of $2,800 a year forthe remainder of the project…
Freida Company is considering an asset replacement project of replacing a control device. This old control device has been fully depreciated but can be sold for $5,000. The new control device, which is more automated, will cost $42,000. The new device’s installation and shipping costs will total $16,000. The new device will be depreciated on a straight-line basis over its 2-year economic life to an estimated salvage value of $0. The actual salvage value of this device at the end of 2-year period (That is, the market value of the device at the end of 2-year period) is estimated to be $4,000. If the replacement project is accepted, Freida will require an initial working capital investment of $2,200 (that is, adding $2,200 initially to its net working capital). During the 1st year of operations, Freida expects its annual revenue to increase from $72,800 to $90,000. After the 1st year, revenues from the replacement are expected to increase at a rate of $2,800 a year for the remainder of…
SGS Golf Academy is evaluating different golf practice equipment. The "Dimple-Max" equipment costs $147,000, has a 5-year life, and costs $9,600 per year to operate. The relevant discount rate is 13 percent. Assume that the straight-line depreciation method is used and that the equipment is fully depreciated to zero. Furthermore, assume the equipment has a salvage value of $23,000 at the end of the project’s life. The relevant tax rate is 25 percent. All cash flows occur at the end of the year. What is the EAC of this equipment? (Your answer should be a negative value and indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Sheep Ranch Golf Academy is evaluating new golf practice equipment. The "Dimple- Max" equipment costs $107,000, has a 6-year life, and costs $9,000 per year to operate. The relevant discount rate is 11 percent. Assume that the straight-line depreciation method is used and that the equipment is fully depreciated to zero. Furthermore, assume the equipment has a salvage value of $8,100 at the end of the project's life. The relevant tax rate is 23 percent. All cash flows occur at the end of the year. What is the equivalent annual cost (EAC) of this equipment? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) EAC
Tucker Enterprise Inc. is considering a project that requires a numerically controlled (NC) machine for $28,000 (year 0) and plans to use it for five years, after which time it will be scrapped. The allowed depreciation deduction during the first year is $4,000 because the equipment falls into the seven-year MACRS property category. (The first-year depreciation rate is 14.29%.) The cost of the goods produced by this NC machine should include a charge for the depreciation of the machine. Suppose the company estimates the following revenues and expenses, including the depreciation for the first operating year:• Gross income = $50,000• Cost of goods sold = $20,000• Depreciation on the NC machine= $4,000• Operating expenses = $6,000Without the project, the company's taxable income from regular business operations amounts to $20 million, which places the company in the highest tax bracket of 35%. Compute the net income from the project during the first year.
Sheep Ranch Golf Academy is evaluating new golf practice equipment. The "Dimple-Max" equipment costs $113,000, has a 5-year life, and costs $9,200 per year to operate. The relevant discount rate is 9 percent. Assume that the straight-line depreciation method is used and that the equipment is fully depreciated to zero. Furthermore, assume the equipment has a salvage value of $8,500 at the end of the project's life. The relevant tax rate is 25 percent. All cash flows occur at the end of the year. What is the equivalent annual cost (EAC) of this equipment?
Commercial Hydronics is considering replacing one of its larger control devices. A new unit sells for $27,000 (delivered). An additional $4,000 will be needed to install the device. The new device has an estimated 17-year service life. The estimated salvage value at the end of 17 years will be $2,000. The new control device will be depreciated as a 7-year MACRS asset. The existing control device (original cost = $20,000) has been in use for 11 years, and it has been fully depreciated (that is, its book value equals zero). Its scrap value is estimated to be $2,000. The existing device could be used indefinitely, assuming the firm is willing to pay for its very high maintenance costs. The firm's marginal tax rate is 40 percent. The new control device requires lower maintenance costs and frees up personnel who normally would have to monitor the system. Estimated annual cash savings from the new device will be $10,000. The firm's cost of capital is 12 percent.Evaluate the relative merits…
Sheep Ranch Golf Academy is evaluating new golf practice equipment. The "Dimple- Max" equipment costs $137,000, has a 4-year life, and costs $10,600 per year to operate. The relevant discount rate is 9 percent. Assume that the straight-line depreciation method is used and that the equipment is fully depreciated to zero. Furthermore, assume the equipment has a salvage value of $10,100 at the end of the project's life, The relevant tax rate is 23 percent. All cash flows occur at the end of the year. What is the equivalent annual cost (EAC) of this equipment? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. $ 40,871.52 X EAC