Loose Leaf for Foundations of Financial Management Format: Loose-leaf
17th Edition
ISBN: 9781260464924
Author: BLOCK
Publisher: Mcgraw Hill Publishers
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Chapter 12, Problem 25P
Telstar Communications is going to purchase an asset for
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Intel Inc is looking to acquire a new equipment for a project that will last for eight years. The after-tax required rate of return of the project is 12% per annum. Intel can borrow at a before-tax interest rate of 10% per annum and buy the equipment outright or lease the equipment from ABC’s Leasing. The applicable corporate tax rate is 28% and the equipment will be fully depreciated to zero over the eight years using a straight-line method. Intel evaluated the lease and decided to buy the equipment by borrowing since the NPV of lease versus borrow-to-buy analysis was estimated to be -$10,000.
However, subsequently Intel realised that in the analysis the purchase cost of the equipment had been under-estimated by $20,000, and also the salvage value of the equipment (at the end of the lease term) had been under-estimated by $7,000. Given the correct purchase price and salvage value, which of the following statements now accurately describes Intel’s decision regarding the acquisition of…
HaulCo is considering the purchase of a truck. Over its five year life, it will provide net revenues of $17,000 per year at an initial cost of $72,000 and a salvage value of $21,000. HaulCo pays 35% in taxes, the CCA rate for trucks is 30%, and the after tax MARR is 12%.
(a) What is the after tax annual cost or worth of this purchase?
(b) Should HaulCo pursue this project? Why or why not?
The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $450,000 and
the asset will provide the following stream of earnings before depreciation and taxes for the next four years: Use Table 12-12.
Year 1 $200,000
Year 2
263,000
90,000
80,000
Year 3
Year 4
The firm is in a 30 percent tax bracket and has a cost of capital of 12 percent. Use Appendix B for an approximate answer but calculate
your final answer using the formula and financial calculator methods.
a. Calculate the net present value. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations
and round your answer to 2 decimal places.)
Net present value
Chapter 12 Solutions
Loose Leaf for Foundations of Financial Management Format: Loose-leaf
Ch. 12 - Prob. 1DQCh. 12 - Why does capital budgeting rely on analysis of...Ch. 12 - Prob. 3DQCh. 12 - Prob. 4DQCh. 12 - What does the term mutually exclusive investments...Ch. 12 - Prob. 6DQCh. 12 - If a corporation has projects that will earn more...Ch. 12 - What is the net present value profile? What three...Ch. 12 - How does an asset’s ADR (asset depreciation...Ch. 12 - Assume a corporation has earnings before...
Ch. 12 - Assume a corporation has earnings before...Ch. 12 - Assume a firm has earnings before depreciation and...Ch. 12 - Assume a firm has earnings before depreciation and...Ch. 12 - Al Quick, the president of a New York Stock...Ch. 12 - Prob. 6PCh. 12 - Prob. 7PCh. 12 - Assume a 90,000 investment and the following cash...Ch. 12 - Prob. 9PCh. 12 - X-treme Vitamin Company is considering two...Ch. 12 - You buy a new piece of equipment for 16,230, and...Ch. 12 - Prob. 12PCh. 12 - Home Security Systems is analyzing the purchase of...Ch. 12 - Aerospace Dynamics will invest 110,000 in a...Ch. 12 - The Horizon Company will invest 60,000 in a...Ch. 12 - Skyline Corp. will invest 130,000 in a project...Ch. 12 - The Hudson Corporation makes an investment of ...Ch. 12 - The Pan American Bottling Co. is considering the...Ch. 12 - You are asked to evaluate the following two...Ch. 12 - Turner Video will invest 76,344 in a project. The...Ch. 12 - The Suboptimal Glass Company uses a process of...Ch. 12 - Keller Construction is considering two new...Ch. 12 - Davis Chili Company is considering an investment...Ch. 12 - Telstar Communications is going to purchase an...Ch. 12 - Assume 65,000 is going to be invested in each of...Ch. 12 - The Summit Petroleum Corporation will purchase an...Ch. 12 - Oregon Forest Products will acquire new equipment...Ch. 12 - Universal Electronics is considering the purchase...Ch. 12 - Prob. 30PCh. 12 - Prob. 31PCh. 12 - Prob. 32PCh. 12 - Hercules Exercise Equipment Co. purchased a...Ch. 12 - Prob. 2WECh. 12 - Returning to TXN’s summary page, record the...
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- XYZ Company plans to invest $1 million in a new plant which is expected to produce a uniform annual net benefit before tax of $300,000 in terms of the base-year dollars over the next 5 years. The plant has a salvage value of $100,000 at the end of 5 years and the depreciation allowance is based on the straight-line depreciation method. The corporate tax rate is 34%, and the after-tax MARR specified by the firm is 10%. determine whether the investment is worthwhile. Year (F/P, i, n) (P/F, i, n) (F/A, i, n) (A/F, i, n) (A/P, i, n) (P/A, i, n) 1. 1000 1. 2100 1. 3310 1. 4641 1. 6105 1. 7716 0. 9091 0. 8264 0. 7513 0. 6830 0. 6209 0. 5645 0. 5132 0. 4665 0. 4241 1. 0000 0. 4762 0. 3021 0. 2155 0. 1638 0. 1296 0. 1054 0. 0874 0. 0736 1. 0000 1. 1000 0. 5762 0. 4021 0. 3155 0. 2638 0. 2296 0. 2054 0. 1874 0. 1736 0. 9091 1. 7355 1 2 2. 1000 3 3. 3100 2. 4869 4 4. 6410 3. 1699 5 6. 1051 3. 7908 7.7156 9. 4872 11. 4359 4. 3553 7 1.9487 4. 8684 8 2. 1436 5. 3349 2. 3579 13. 5795 5. 7590arrow_forwardThe Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $340,000 and the asset will provide the following stream of earnings before depreciation and taxes for the next four years: Use Table 12-12. Year 1 Year 2 Year 3 Year 4 $ 160,000 209,000 75,000 68,000 The firm is in a 35 percent tax bracket and has a cost of capital of 9 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Calculate the net present value. Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places. Net present value b. Under the net present value method, should Summit Petroleum Corporation purchase the asset? O Yes O Noarrow_forwardNokela Industries purchases a $36.4 million cyclo-converter. The cyclo-converter will be depreciated by $9.1 million per year over four years, starting this year. Suppose Nokela's tax rate is 25%. a. What impact will the cost of the purchase have on earnings for each of the next four years? b. What impact will the cost of the purchase have on the firm's cash flow for the next four years?arrow_forward
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