Consider the following investment: Initial cost = $150,000. Annual revenue = $50,000, Annual expenses = $15,000, Useful Life = 10 Years. %3D %3D %3D Depreciation life = 10 Years. Salvage value = $0. MARR = 18%. Tax Rate = 40%.
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- A firm has the opportunity to invest in a project having an initial outlay of $20,000. Net cash inflows (before depreciation and taxes) are expected to be $5,000 per year for five years. The firm uses the straight-line depreciation method with a zero salvage value and has a (marginal) income tax rate of 40 percent. The firms cost of capital is 12 percent. Compute the IRR and the NPV. Should the firm accept or reject the project?Chanveida finds a home listed for $48k. Similar homes in good condition sell for $60k (market value). She pays $35k. Closing costs are $2k, estimated fix-up is $7k, and holding costs are $3k. She ‘flips’ the property after 3 months for $58k. Her closing costs upon sale are 7% of the sell price. Her overall tax rate is 30%. Assume no financing is used and there is no depreciation taken. Determine the Adjusted Cost Basis. (Do not show a decimal or cents in your answer)An investment of $1.000.000 will be included in the 7-year MACRS class for depreciation. It would also require an additional $150,000 to invest in inventory and would add $50,000 to accounts payable. Will generate $400000 in revenue and $150000 in cash expenses annually. The tax rate is 21 per cent. What are the incremental cash flows for years 0, 1, 7 and 8?
- Question 2: A new bottle-capping machine costs $45 000, including $5 000 for installation. Operating and maintenance costs are expected to be $3 000 for the first year, increasing by $ 1 000 each year thereafter. The salvage value is calculated by straight-line depreciation where a value of 0 is assumed at the end of the service life. a) Construct a spreadsheet that computes the equivalent annual cost (EAC) for the bottle capper. What is the economic life if the expected service life is 6, 7, 8, 9 or 10 years? Interest is 12%./ b) How sensitive is the economic life to the different length of service life? Construct a sensitivity graph to illustrate this point.SGS Golf Academy is evaluating different golf practice equipment. The "Dimple-Max" equipment costs $149,000, has a 4-year life, and costs $9,300 per year to operate. The relevant discount rate is 14 percent. Assume that the straight-line depreciation method is used and that the equipment is fully depreciated to zero. Furthermore, assume the equipment has a salvage value of $21,500 at the end of the project’s life. The relevant tax rate is 22 percent. All cash flows occur at the end of the year. What is the EAC of this equipment? Note: Your answer should be a negative value and indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.Consider a project to supply Detroit with 27,000 tons of machine screws annually for automobile production. You will need an initial $4,600,000 investment in threading equipment to get the project started; the project will last for 5 years. The accounting department estimates that annual fixed costs will be $1,100,000 and that variable costs should be $205 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 5-year project life. It also estimates a salvage value of $475,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $308 per ton. The engineering department estimates you will need an initial net working capital investment of $440,000. You require a return of 12 percent and face a tax rate of 23 percent on this project. a. Suppose you’re confident about your own projections, but you’re a little unsure about Detroit’s actual machine screw…
- 2- The marginal cost for year t is computed as SV, - SV-1+SV¢ • i+ Cost, where SV denotes salvage value. a) TRUE b) FALSE 3- Replacement rule implies replacing the existing asset when the marginal cost of the existing asset is more than the marginal cost of the new asset. a) TRUE b) FALSE 4- Depreciation recapture occurs when the market value of an asset is greater than the book value. a) TRUE b) FALSE 5- Year 1 SV O&M 15,000 1000 12,000 1500 9.000 2 3 2000 The table above lists salve value (SV) and operating and mainteriance (O&M) cost of an asset through 3 years with the initial cost of $20,000. Given MARR is 10%, which of the statements is correct (choose the closest answer)? a) The marginal cost at year 2 is $6,000 and the annual cost (EUAC) through year two is $6,500 b) The marginal cost at year 2 is $6,000 and the annual cost (EUAC) through year two is $7,048 c) The marginal cost at year 2 is $6,500 and the annual cost (EUAC) through year two is $7,048 d) The marginal cost at…Gillespie Gold Products, Inc., is considering the purchase of new smelting equipment. The newequipment is expected to increase production and decrease costs, with a resulting increase in profits.First Cost is at $40,000; Savings per year is $10,000; Actual useful life is 5 years; Salvage value is$4000. a. Determine the ATCF using a tax rate of 42% and straight-line method of depreciation.b. If the average yearly inflation rate for the 5-year study period is 3.5%, what is the real-dollar ATCF that is equivalent to the actual-dollar ATCF? The base time period is year zero (b=0).A certain newly created company installed a 10,000kW electric generating plant at a cost of P430 per kW. The estimated life of the plant is 15 years. Salvage value is conservatively set at x% of the first cost. The interest on the sinking fund deposit is 3.5%. The accumulated depreciation after 10 years is P2,483,595. a. What percentage of first cost is set as salvage value? b. How much should the electric generating plant be priced at the end of 8 years? c. If the salvage value is increased by 2%, what is the book value after 10 years?
- = You are given the following information for Calvani Pizza Co.: sales = $41200; costs $21601; addition to retained earnings = $7046; dividends paid = $3793; interest expense = $2391; tax rate = 30 percent. Calculate the depreciation expense.A): Calculate the total cost, total depreciation, and annual depreciation (in $) for the following assets by using the straight-line method. (Round your answers to the nearest cent.) *chart attached* B): Mason Industries purchased a drilling rig for $75,900. Delivery costs totaled $2,831. The useful life is 7 years and the salvage value is $12,938. Prepare a depreciation schedule using the straight-line method. *CHART ATTACHED*(a) Telecom Namibia is considering the purchase of a machine which cost 100 thousand dollars, and which has a lifespan of only two years, after which it has a zero scrap value. This investment, if undertaken, will generate gross return of 53 thousand dollars and 84 thousand dollars at the end of the first year and second year, respectively, after deducting all the cost except depreciation and interest rate cost. Should Telecom Namibia go ahead with this investment when the prevailing rate of interest is 18 percent? Explain