Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 10, Problem 6QP
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Fill in the missing numbers and then
ation tax shield?
5. Calculating Depreciation A piece of newly purchased industrial equipment
costs $745,000 and is classified as seven-year property under MACRS.
Calculate the annual depreciation allowances and end-of-the-year book values
for this equipment.
LO 2
6. Calculating Salyage Value Consider an asset that costs $635,000 and is
N6
A new machine tool is being purchased for $260,000 and is expected to have a $36,000 salvage value at the end of its 5-year useful life. Assume any remaining depreciation is claimed in the last year. Compute the depreciation schedules for this capital asset, using the following methods: (a) Straight-line depreciation (b) MACRS Note: No statement is required for this problem.
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The new equipment will have a cost of $1,800,000, and it is eligible for 100% bonus depreciation so it will be fully depreciated at
1-0.
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 salvage
value (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 the
and 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 operating
costs (including depreciation…
Chapter 10 Solutions
Fundamentals of Corporate Finance
Ch. 10.1 - What are the relevant incremental cash flows for...Ch. 10.1 - What is the stand-alone principle?Ch. 10.2 - Prob. 10.2ACQCh. 10.2 - Prob. 10.2BCQCh. 10.2 - Explain why interest paid is not a relevant cash...Ch. 10.3 - What is the definition of project operating cash...Ch. 10.3 - For the shark attractant project, why did we add...Ch. 10.4 - Prob. 10.4ACQCh. 10.4 - How is depreciation calculated for fixed assets...Ch. 10.5 - Prob. 10.5ACQ
Ch. 10.5 - Prob. 10.5BCQCh. 10.6 - Prob. 10.6ACQCh. 10.6 - Under what circumstances do we have to worry about...Ch. 10 - Prob. 10.1CTFCh. 10 - What should NOT be included as an incremental cash...Ch. 10 - Prob. 10.3CTFCh. 10 - An asset costs 24,000 and is classified as...Ch. 10 - Prob. 10.5CTFCh. 10 - Prob. 10.6CTFCh. 10 - Opportunity Cost [LO1] In the context of capital...Ch. 10 - Depreciation [LO1] Given the choice, would a firm...Ch. 10 - Net Working Capital [LO1] In our capital budgeting...Ch. 10 - Stand-Alone Principle [LO1] Suppose a financial...Ch. 10 - Prob. 5CRCTCh. 10 - Cash Flow and Depreciation [LOI] When evaluating...Ch. 10 - Capital Budgeting Considerations [LOI] A major...Ch. 10 - Prob. 8CRCTCh. 10 - Prob. 9CRCTCh. 10 - Prob. 10CRCTCh. 10 - Relevant Cash Flows [LO1] Parker Slone, Inc., is...Ch. 10 - Prob. 2QPCh. 10 - Calculating Projected Net Income [LO1] A proposed...Ch. 10 - Calculating OCF [LO1] Consider the following...Ch. 10 - OCF from Several Approaches [LO1] A proposed new...Ch. 10 - Calculating Depreciation [LO1] A piece of newly...Ch. 10 - Calculating Salvage Value [LO1] Consider an asset...Ch. 10 - Calculating Salvage Value [LO1] An asset used in a...Ch. 10 - Calculating Project OCF [LO1] Quad Enterprises is...Ch. 10 - Calculating Project NPV [LO1] In the previous...Ch. 10 - Prob. 11QPCh. 10 - NPV and Modified ACRS [LO1] In the previous...Ch. 10 - Project Evaluation [LO1] Dog Up! Franks is looking...Ch. 10 - Project Evaluation [LO1] Your firm is...Ch. 10 - Prob. 15QPCh. 10 - Calculating EAC [LO4] A five-year project has an...Ch. 10 - Calculating EAC [LO4] You are evaluating two...Ch. 10 - Calculating a Bid Price [LO3] Romo Enterprises...Ch. 10 - Cost-Cutting Proposals [LO2] Warmack Machine Shop...Ch. 10 - Comparing Mutually Exclusive Projects [LO1] Lang...Ch. 10 - Prob. 21QPCh. 10 - Prob. 22QPCh. 10 - Prob. 23QPCh. 10 - Comparing Mutually Exclusive Projects [LO4]...Ch. 10 - Equivalent Annual Cost [LO4] Compact fluorescent...Ch. 10 - Break-Even Cost [LO2] The previous problem...Ch. 10 - Break-Even Replacement [LO2] The previous two...Ch. 10 - Issues in Capital Budgeting [LO1] The debate...Ch. 10 - Replacement Decisions [LO2] Your small remodeling...Ch. 10 - Replacement Decisions [LO2] In the previous...Ch. 10 - Calculating Project NPV [LO1] You have been hired...Ch. 10 - Prob. 32QPCh. 10 - Calculating Required Savings [LO2] A proposed...Ch. 10 - Prob. 34QPCh. 10 - Calculating a Bid Price [LO3] Your company has...Ch. 10 - Replacement Decisions [LO2] Suppose we are...Ch. 10 - Conch Republic Electronics, Part 1 Conch Republic...Ch. 10 - Conch Republic Electronics, Part 1 Conch Republic...Ch. 10 - Conch Republic Electronics, Part 1 Conch Republic...Ch. 10 - Conch Republic Electronics, Part 1 Conch Republic...
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- PQ16.09 An asset with a first cost of $100,000 is depreciated over 5-year period. It is expected to have a $10,000 salvage value at the end of 5 years. Using the straight-line method, what is the book value at the end of year 2?arrow_forward3. An asset initially costs P55,000.00 and a salvage value P5,000.00 after 11 years. What is the book value after eight years using straight-line depreciation method?arrow_forwardRework Example 7-21 using the MACRS depreciation method (assume three-year property class) instead of the SL depreciation method 7-21. A new municipal refuse collection vehicle can be purchased for $84,000. Its expected useful life is 6 years, at which time the market value and book value will be zero. Before-tax cash flow (BTCF) will be +$18,000 per year over the 6-year life of the vehicle. (7.9) a. Use straight-line depreciation, an effective income tax rate of 40% and an after-tax MARR of 12% to determine the present worth of the investment. b. What is the after-tax internal rate of return? c. Is this vehicle a sound investment? Explain your answer.arrow_forward
- 4 Construct the annual depreciation charge of an equipment purchased at a cost of P7,535,000 using double-dedining balance method if the estimated useful life is 10 years. determine also the estimated scrap value.arrow_forward1. An equipment costing P750,000 has a life expectancy of 6 years. Using the sum-of-year’s digit method of depreciation, what must be its salvage value such that its depreciation charge at the fifth year is P52,380.95? A. P400,000 B. P250,000 C. P300,000 D. P200,000arrow_forwardCh 6. Seeing Red has a new project that will require fixed assets of $935,000, which will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company has a tax rate of 28 percent. What is the depreciation tax shield for Year 3? Round to the nearest cent and format answer as "XX,XXX.XX"arrow_forward
- An asset cost $200,000. It has a salvage value of $40,000. It has a 10 year life. What would be its book value at the end of year one if it uses straight-line depreciation? Group of answer choices $144,000 $160,000 $40,000 $184,000arrow_forwardAmachine whose cost is 80.000 nyals and s value as scrap is 5,000 ryals and its useful ife is 5 years The balance of the depreciation complex for the second year according to the method of depreciating the dedning balance wil be. Second one: O 19200 O 12800 O 28800 O 51200arrow_forwardAn asset cost $200,000. It has a salvage value of $40,000. It has a 10 year life. What is its depreciation expense if the company uses straight-line depreciation? Group of answer choices $200,000 $160,000 $20,000 $16,000arrow_forward
- 5.Suppose that the purchase price of a piece of equipment is $1million.its salvage value at the end of its 5 years service life is $500000.Depreciate this asset using straight line depreciation and declining balance depreciation.arrow_forwardMCQ3 Smitty Inc. wishes to use the revaluation model for this property: Before Revaluation • Building Gross Value 120,000 • Building Accumulated Depreciation 40,000 • Net carrying value 80,000 The fair value for the property is $150,000. Assuming this is the first year of using the revaluation model, what amount would be booked to the Accumulated Depreciation account, if Smitty chooses to use the proportional method to record the revaluation?arrow_forwardWhat is the depreciation deduction each year, using each of the methods below, for an asset that costs $65,000 and has an estimated salvage value of $5,000 at the end of its six-year useful life? Assume its class life is 6 years and its GDS (MACRS) recovery period is 5 years. a). SL b). 200% DB c). 200% DB with switchover to SL d). GDS (MACRS)arrow_forward
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