Your company is contemplating replacing their current fleet of delivery vehicles with Nissan NV vans. You will be replacing 5 fully-depreciated vans, which you think you can sell for $3,100 a piece and which you could probably use for another 2 years if you chosenot to replace them. The NV vans will cost $30,000 each in the configuration you want them, and can be depreciated using MACRSover a 5-year life, but you are unable to make use of either bonus depreciation or Section 179 expensing. Expected yearly before-taxcash savings due to acquiring the new vans amounts to about $3,800 each. If your cost of capital is 10 percent and your firm faces a 21percent tax rate, what will the cash flows for this project be? (Round your answers to the nearest dollar amount.)FCFYear16

Free cash flow refers to the cash that is generated by the company after considering all the cash…

Answered: Your company is contemplating replacing…

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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A new furnace for your small factory will cost $47,000 and a year to install, will require ongoing maintenance expenditures of $1,500 a year. But it is far more fuel-efficient than your old furnace and will reduce your consumption of heating oil by 4,400 gallons per year. Heating oil this year will cost $2 a gallon; the price per gallon is expected to increase by $0.50 a year for the next 3 years and then to stabilize for the foreseeable future. The furnace will last for 20 years, at which point it will need to be replaced and will have no salvage value. The discount rate is 8%. a. What is the net present value of the investment in the furnace? (Do not round intermediate calculations. Round your answer to the nearest whole dollar.) b. What is the IRR? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) c. What is the payback period? (Do not round intermediate calculations. Round your answer to 2 decimal places.) d. What is the…
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $970,000, and it would cost another $18,000 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $495,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $14,000. The sprayer would not change revenues, but it is expected to save the firm $366,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar.1) What is the Year-0 net cash flow? A) What are the net operating cash flows in Years 1, 2, and 3? B) What is the additional Year-3 cash flow (i.e, the after-tax…
Ruff Motors needs to select an assembly line for producing their new SUV. They have two options:• Option A is a highly automated assembly line that has a large up-front cost but low maintenancecost over the years. This option will cost $8 million today with a yearly operating cost of $2 million.The assembly line will last for 5 years and be sold for $5 million in 5 years.• Option B is a cheaper alternative with less technology, a longer life, but higher operating costs.This option will cost $7 million today with an annual operating cost of $2.5 million. This assemblyline will last for 8 years and be sold for $1 million in 8 years.The firm’s cost of capital is 12%. Assume a tax rate of zero percent.The equivalent annual cost (EAC) for Option A is $_______ million.The equivalent annual cost (EAC) for Option B is $_______ million.
You are trying to pick the least expensive car for your new delivery service. You have two choices: the Kia Rio, which will cost $19, 500 to purchase and which will have OCF of -$ 2,300 annually throughout the vehicle's expected life of three years as a delivery vehicle; and the Toyota Prius, which will cost $28, 000 to purchase and which will have OCF of -$1,200 annually throughout that vehicle's expected 4-year life. Both cars will be worthless at the end of their life. If you intend to replace whichever type of car you choose with the same thing when its life runs out, again and again out into the foreseeable future. If the business has a cost of capital of 13 percent, calculate the EAC. Note: Negative amounts should be indicated by a minus sign. Do not round your intermediate calculations. Round your answers to 2 decimal places.
DeYoung Entertainment Enterprises is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model. The old machine has a book value of $450,000 and a remaining useful life of 5 years. The current machine would be worn out and worthless in 5 years, but DeYoung can sell it now to a Halloween mask manufacturer for $135,000. The old machine is being depreciated by $90,000 per year for each year of its remaining life. If DeYoung doesn't replace the old machine, it will have no salvage value at the end of its useful life. The new machine has a purchase price of $775,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $105,000. The applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. Being highly efficient, it is expected to economize on electric power usage, labor, and repair costs, and, most importantly, to reduce the number of defective chickens. In total,…
DeYoung Entertainment Enterprises is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model. The current machine has a book value of $600,000 and is being depreciated by $120,000 per year over its remaining useful life of 5 years. The current machine would be worn out and worthless in 5 years, but DeYoung can sell it now to a Halloween mask manufacturer for $180,000. If DeYoung doesn't replace the current machine, it will have no salvage value at the end of its useful life. The new machine has a purchase price of $825,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $105,000. The applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. Being highly efficient, it is expected to economize on electric power usage, labor, and repair costs, and, most importantly, to reduce the number of defective chickens. In total, an annual savings of $185,000 will…
Your friend Harold is trying to decide whether to buy or lease his next vehicle. He has gathered information about each option but is not sure how to compare the alternatives. Purchasing a new vehicle will cost $27,500, and Harold expects to spend about $600 per year in maintenance costs. He would keep the vehicle for five years and estimates that the salvage value will be $10,900. Alternatively, Harold could lease the same vehicle for five years at a cost of $3,575 per year, including maintenance. Assume a discount rate of 12 percent. Required: Calculate the net present value of Harold’s options. (Future Value of $1,Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) Advise Harold about which option he should choose.
Sagar
You are trying to pick the least expensive car for your new delivery service. You have two choices: the Scion xA, which will cost $13,000 to purchase and which will have OCF of -$1,200 annually throughout the vehicle's expected life of three years as a delivery vehicle; and the Toyota Prius, which will cost $23,000 to purchase and which will have OCF of -$550 annually throughout that vehicle's expected five-year life. Both cars will be worthless at the end of their life. If you intend to replace whichever type of car you choose with the same thing when its life runs out, again and again out into the foreseeable future, and if your business has a cost of capital of 12 percent, what is the difference in the EAC of the two cars? Multiple Choice $413.25 $310.38 $317.88
You are considering buying a new Honda CR-V and are trying to choose between the gas-only model ($26,500 and 28 miles/gallon) and the gas-electric hybrid model ($31,700 and 40 miles/gallon). If gasoline costs $2.80/gallon, how many miles per year must you drive for the hybrid to be worth the extra cost? Assume you will sell the car after 5 years for 60% of what you paid for it (Hondas hold their value really well) and your MARR is 6% per year
Waterway Corporation is considering purchasing a new delivery truck. The truck has many advantages over the company’s current truck (not the least of which is that it runs). The new truck would cost $57,000. Because of the increased capacity, reduced maintenance costs, and increased fuel economy, the new truck is expected to generate cost savings of $7,500. At the end of 8 years, the company will sell the truck for an estimated $28,100. Traditionally the company has used a rule of thumb that a proposal should not be accepted unless it has a payback period that is less than 50% of the asset’s estimated useful life. Larry Newton, a new manager, has suggested that the company should not rely solely on the payback approach, but should also employ the net present value method when evaluating new projects. The company’s cost of capital is 8%. Compute the cash payback period and net present value of the proposed investment. (If the net present value is negative, use either a negative sign…

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