EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 9, Problem 11P
Summary Introduction
To determine: The after-tax proceeds from sale.
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Two years ago Agro Inc., purchased an ACE generator that cost $300,000. Agro had to pay an additional $10,000 for delivery and installation, and the investment in the generator required the firm to increase its net working capital position by $20,000. The generator, which is being depreciated over a period of 4 years using straight-line depreciation, has a current market value of $71,150. The firm’s marginal tax rate is 40 percent. If the firm liquidates the asset for its current market value, compute the after-tax proceeds from the sale of the asset. Round your answer to the nearest dollar.
$
Jabba-Dabba-Doo Inc. renovated its warehouses exactly two years ago at a cost of $3.5 million. The renovations were considered leasehold improvements, so the cost was subject to straight-line depreciation for tax purposes. The firm will not need to renovate the warehouses for another three years (from today). Given that the firm’s marginal tax rate is 35% and required return is 12%, what is the present value of the remaining depreciation tax shields on the leasehold improvement? Ignore the half-year rule, and round your answer to the nearest dollar.
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a. $588,449
b. $359,629
c. $513,181
d. $630,069
e. $210,303
Edwards Manufacturing Company (EMC) is considering replacing one machine with another. The old machine was purchased 3 years ago for an installed cost of $10,000. The new machine costs $24,700 and requires $1,900 in installation costs. Both machines are depreciable using a MACRS five-year recovery period See table attached, for the applicable depreciation percentages.) The firm is subject to a 21% tax rate. In each of the following cases, calculate the initial cash flow for the replacement.
a. EMC sells the old machine for $13,000.
b. EMC sells the old machine for $7,000.
c. EMC sells the old machine for $2,900.
Chapter 9 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Ch. 9.A - Prob. 1QTDCh. 9.A - Prob. 1PCh. 9.A - Prob. 2PCh. 9.A - Prob. 3PCh. 9.A - Prob. 4PCh. 9.A - Prob. 5PCh. 9 - Prob. 1QTDCh. 9 - Prob. 2QTDCh. 9 - Prob. 3QTDCh. 9 - Prob. 4QTD
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