PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 11, Problem 11PS
Summary Introduction
To determine:
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The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $55,000. The machine
would replace an old piece of equipment that costs $14,000 per year to operate. The new machine would cost $6,000 per year to
operate. The old machine currently in use could be sold now for a salvage value of $20,000. The new machine would have a useful
life of 10 years with no salvage value.
Required:
1. What is the annual depreciation expense associated with the new bottling machine?
2. What is the annual incremental net operating income provided by the new bottling machine?
3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return?
4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be
considered as 12.3%.)
The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $69,000. The machine would replace an old piece of equipment that costs $17,000 per year to operate. The new machine would cost $7,000 per year to operate. The old machine currently in use could be sold now for a salvage value of $23,000. The new machine would have a useful life of 10 years with no salvage value.
Required:
1. What is the annual depreciation expense associated with the new bottling machine?
2. What is the annual incremental net operating income provided by the new bottling machine?
3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return?
4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.)
1.
Depreciation expense
2.
Incremental net operating income
3
Initial…
SKR Inc. is considering the purchase of a new leather-cutting machine to replace an existing machine that has a book value of $5000 and can be sold for $ 1,500. The old machine is being depreciated as written down value method basis. The WDV rate is 20%. The old machine’s estimated salvage value 5 years from now is $0. The new machine will reduce fixed costs (before taxes) by $10,000 per year. The new machine will improve quality, thus increasing our leather sales from $25,000 to $35,000 per year. Variable costs are 45% of sales. The new machine has a 5-years life, it costs $20,200 and it can be sold for an expected $3,500 at the end of the third year. Because of the new sales, we will increase our inventory by $4,000, our accounts receivable by $500. The tax accountant has told SKR Inc that the new machine would also be depreciated using written down value method at 20%. Assume a 30% tax rate (corporate as well as capital gain) and a cost of capital of 15 per cent. You are required…
Chapter 11 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 11 - Capital budgeting process True or false? a. The...Ch. 11 - Capital budgeting process Explain how each of the...Ch. 11 - Capital budgeting process Draw up an outline or...Ch. 11 - Prob. 4PSCh. 11 - Biased forecasts Look back to the cash flows for...Ch. 11 - Prob. 6PSCh. 11 - Prob. 7PSCh. 11 - Prob. 8PSCh. 11 - Market prices Suppose the current price of gold is...Ch. 11 - Prob. 10PS
Ch. 11 - Prob. 11PSCh. 11 - Prob. 12PSCh. 11 - Prob. 13PSCh. 11 - Economic rents True or false? a. A firm that earns...Ch. 11 - Prob. 16PSCh. 11 - Economic rents Thanks to acquisition of a key...Ch. 11 - Prob. 18PSCh. 11 - Prob. 19PSCh. 11 - Prob. 20PSCh. 11 - Prob. 21PSCh. 11 - Prob. 22PSCh. 11 - Economic rents Taxes are a cost, and, therefore,...Ch. 11 - Prob. 1MCCh. 11 - Libby Flannery, the regional manager of Ecsy-Cola,...
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