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 30P
Summary Introduction
To determine: Whether the investment should be made or not.
Introduction:
It is the difference between the PV (present value) of
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The Spartan Technology Company has a proposed contract with the Digital Systems Company of Michigan. The initial investment in
land and equipment will be $320,000. Of this amount, $260,000 is subject to five-year MACRS depreciation. The balance is in
nondepreciable property. The contract covers six years; at the end of six years, the nondepreciable assets will be sold for $60,000.
The depreciated assets will have zero resale value. Use Table 12-12.
The contract will require an additional investment of $59,000 in working capital at the beginning of the first year and, of this amount,
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percent tax bracket and has a 8 percent cost of capital.
a. Calculate the net present value. (Do not round intermediate calculations and round your answer to 2 decimal places.)
X Answer is complete but…
The Spartan Technology Company has a proposed contract with the Digital Systems Company of Michigan. The initial investment in
land and equipment will be $320,000. Of this amount, $260,000 is subject to five-year MACRS depreciation. The balance is in
nondepreciable property. The contract covers six years; at the end of six years, the nondepreciable assets will be sold for $60,000.
The depreciated assets will have zero resale value. Use Table 12-12.
The contract will require an additional investment of $59,000 in working capital at the beginning of the first year and, of this amount,
$39,000 will be returned to the Spartan Technology Company after six years.
The investment will produce $91,000 in income before depreciation and taxes for each of the six years. The corporation is in a 25
percent tax bracket and has a 8 percent cost of capital.
a. Calculate the net present value. (Do not round intermediate calculations and round your answer to 2 decimal places.)
Net present value
b. Should…
Oregon Machinery Company (OMC) has decided to acquire a screw machine. One alternative is to lease the machine on a three-year contract for a lease payment of $22,000 per year with payments to be made at the beginning of each year. The lease would include maintenance. The second alternative is to purchase the machine outright for $97,000, financing the investment with a bank loan for the net purchase price and amortizing the loan over a three-year period at an interest rate of 12% per year (annual payment = $40, 386). Under the borrow-to-purchase arrangement, the company would have to maintain the machine at an annual cost of $6,000, payable at year-end. The machine falls into the seven-year MACRS classification, and it has a salvage value of $45,000, which is the expected market value at the end of year 3. After three years, the company plans to replace the machine regardless of whether it leases or buys. The tax rate is 40%, and the MARR is 15%.(a) What is OMC's PW cost of…
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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