EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 9, Problem 6P
a)
Summary Introduction
To determine: The plant’s net investment.
b)
Summary Introduction
To determine: The installed cost of plant.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
The Jacob Chemical Company is considering building a new potassium sulfate plant. The
following cash outlays are required to complete the plant:
Year
Cash Outlay
$4,000,000
1
2,000,000
2
500,000
Jacob's cost of capital is 12 percent, and its marginal tax rate is 40 percent.
a. Calculate the plant's net investment (NINV).
b. What is the installed cost of the plant for tax purposes?
The Jacob Chemical Company is considering building a new potassium sulfate plant. The following cash outlays are required to complete the plant:
Year
Cash Outlay
0
$6,000,000
1
1,700,000
2
400,000
Jacob’s cost of capital is 12 percent, and its marginal tax rate is 40 percent.
Calculate the plant’s net investment (NINV). Use Table II to answer the questions. Round your answer to the nearest dollar.
$
What is the installed cost of the plant for tax purposes? Round your answer to the nearest dollar.
$
The Jacob Chemical Company is considering building a new potassium sulfate plant. The following cash outlays are required to complete the plant:
Year
Cash Outlay
0
$6,000,000
1
1,700,000
2
400,000
Jacob’s cost of capital is 12 percent, and its marginal tax rate is 40 percent.
Calculate the plant’s net investment (NINV). Use Table II to answer the questions. Round your answer to the nearest dollar.
$
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
Ch. 9 - Prob. 5QTDCh. 9 - Prob. 6QTDCh. 9 - Prob. 7QTDCh. 9 - Prob. 8QTDCh. 9 - Prob. 9QTDCh. 9 - Prob. 10QTDCh. 9 - Prob. 11QTDCh. 9 - Prob. 1PCh. 9 - Prob. 2PCh. 9 - Prob. 3PCh. 9 - Prob. 4PCh. 9 - Prob. 5PCh. 9 - Prob. 6PCh. 9 - Prob. 7PCh. 9 - Prob. 8PCh. 9 - Prob. 9PCh. 9 - Prob. 10PCh. 9 - Prob. 11PCh. 9 - Prob. 12PCh. 9 - Prob. 13PCh. 9 - Prob. 14PCh. 9 - Prob. 15PCh. 9 - Prob. 16PCh. 9 - Prob. 17PCh. 9 - Prob. 18PCh. 9 - Prob. 19PCh. 9 - Prob. 20PCh. 9 - Prob. 21PCh. 9 - Prob. 22P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Moda Produce is considering the purchase of a new machine to replace the existing asset. The current market value of the old fixed asset is $14,000, and $5,000 is its book value. The new equipment's cost as a fixed asset is $30,000. If the firm's marginal tax rate is 40%, what is the initial investment outlay for the acquisition of this new asset?arrow_forwardGenesis Corporation want to purchase a piece of machinery for $150,000 that will cost $20,000 to have it delivered and installed. Based on past information, they believe they can sell the machinery for $25,000 in 5 years. The company’s marginal tax rate is 34%. If the applicable CCA rate is 20% and the required return on this project is 15%, what is the present value of the CCA tax shield?arrow_forwardShunt Technology will spend $800,000 on a piece of equipment that will manufacture fine wire for the electronics industries. The shipping and installation charges will be $240,000 and net working capital will increase $48,000.The equipment will replace an existing machine that has a salvage value of $75,000 and a book value of $125,000. If Shunt has a current marginal tax rate of 34 percent, what is the net investment?arrow_forward
- b. Cendrawasih Inc. is considering replacing the equipment it uses to produce crayons. The equipment would cost RM1.37 million, have a 12-year life, and lower manufacturing costs by an estimated RM304,000 a year. The equipment will be depreciated using straight-line depreciation to a book value of zero. The required rate of return is 15 percent and the tax rate is 35 percent. Determine the net income from this proposed project.arrow_forwardThe Company is considering two independent projects. One project involves a new product line, and the other involves the acquisition of a special equipment for the Materials Handling Department. The projected annual operating revenues and expenses are as follows: 1. How much is the after tax cash flows of Project 1? 2. How much is the net benefit of investing in Project 2?arrow_forwardCendrawasih Inc. is considering replacing the equipment it uses to produce crayons. The equipment would cost RM1.37 million, have a 12-year life, and lower manufacturing costs by an estimated RM304,000 a year. The equipment will be depreciated using straight-line depreciation to a book value of zero. The required rate of return is 15 percent and the tax rate is 35 percent. Determine the net income from this proposed project.arrow_forward
- Suppose that Sudbury Mechanical Drifters is proposing to invest $10 million in a new factory. It can depreciate this investment straight-line over 10 years. The tax rate is 40%, and the discount rate is 10%. a. What is the present value of Sudbury's depreciation tax shields? b. What would be the present value of the tax shield if the government allowed Sudbury to write-off the factory immediately? Complete this question by entering your answers in the tabs below. Required A Required B What is the present value of Sudbury's depreciation tax shields? Note: Enter your answers in millions rounded to 1 decimal place. Depreciation straight-line, 10-year Tax Shields at 40% tax rate PV (Tax Shields) at 10% Year 1 Year 2 Year 3 Year 4 Year 5 Suppose that Sudbury Mechanical Drifters is proposing to invest $10 million in a new factory. It can depreciate this investment straight-line over 10 years. The tax rate is 40%, and the discount rate is 10%. a. What is the present value of Sudbury's…arrow_forwardHypore Darby Park Department is considering a new capital investment. The following information is available on the investment. The cost of the machine will be $348,400. The annual cost savings if the new machine is acquired will be $80,000. The machine will have a 6-year life, at which time the terminal disposal value is expected to be zero. Hypore Park Department is assuming no tax consequences. What is the internal rate of return for Hypore Park Department? Question 6 options: 11% 9% 5% 10%arrow_forwardSuppose that Sudbury Mechanical Drifters is proposing to invest $20.0 million in a new factory. It can depreciate this investment straight-line over 10 years. The tax rate is 40%, and the discount rate is 10%. a. What is the present value of Sudbury's depreciation tax shields? b. What would be the present value of the tax shield if the government allowed Sudbury to write-off the factory immediately? Complete this question by entering your answers in the tabs below. Required A Required B What is the present value of Sudbury's depreciation tax shields? Note: Enter your answers in millions rounded to 1 decimal place. Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Total Depreciation straight-line, 10-year Tax Shields at 40% tax rate PV (Tax Shields) at 10%arrow_forward
- A start-up biotech company is considering making an investment of $100,000 in a new filtration system. The associated estimates are summarized as shown below: Straight-line depreciation will be used, and the effective income tax rate is 20%. The after-tax MARR is 15% per year. Determine whether this investment is an attractive option for the company.arrow_forward1. A chemical plant is considering purchasing a computerized control system. The initial cost is $200,000, and the system will produce net savings of $100,000 per year. If purchased, the system will be depreciated under MACRS as a five-year recovery property. The system will be used for four years, at the end of which time the firm expects to sell it for $30,000. The firm's marginal tax rate on this investment is 28%. Any capital gains will be taxed at the same income tax rate. The firm is considering purchasing the computer control system either through its retained earnings or through borrowing from a local bank. Two commercial banks are willing to lend the $200,000 at an interest rate of 10%, but each requires different repayment plans (See Table below). Bank A requires four equal annual payments with interest calculated separately based on the unpaid balance prior to each payment. Bank B offers a traditional installment payment plan with five equal annual payments (interest +…arrow_forwardA Garry Manufacturing Company is considering a three-year project that has a cost of $75,000. The project will generate after-tax cash flows of $33,100 in Year 1, $31,500 in Year 2, and $31,200 in Year 3. Assume that the firm's proper rate of discount is 10% and that the firm's tax rate is 40%. What is the project's payback and outline any limitations in using the payback period method in selecting acceptable projects? Tetious Dimensions is introducing a new product that is expected to increase it net operating income by $775,000. Tetious Dimensions has a 21% marginal tax rate. This project will also produce $200,000 of depreciation per year. In addition, this project will cause the following changes: Without the Project With the Project Accounts Receivable $55,000 $89,000 Inventory $100,000…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Capital Budgeting Introduction & Calculations Step-by-Step -PV, FV, NPV, IRR, Payback, Simple R of R; Author: Accounting Step by Step;https://www.youtube.com/watch?v=hyBw-NnAkHY;License: Standard Youtube License