Lowell Inc. is thinking about replacing an old computer with a new one. The new one will cost $1,000,000 and will have a life of FOUR years. The new computer qualifies as 5-year MACRS property. Years 1 2 3 4 Depreciation rate 20% 32% 19% 12% It will probably be worth about $330,000 after FOUR years. The old computer is being depreciated at a rate of $100,000 per year. It will be completely written off in FOUR years, at that time it will have zero resale value. We can sell it now for $410,000 after taxes. The new machine will save us $200,000 per year in operating costs. The tax rate (federal plus state) is 25 percent and WACC is 8 percent. What is the TOTAL FREE CASH FLOW FOR YEAR 4? Free cash flow = Total Initial Investment + Total annual project CF + Total Salvage Value 480,000 467,500 445,000 422,500
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- Although the Chen Company’s milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $110,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $19,000 per year. It would have zero salvage value at the end of its life. The project cost of capital is 10%, and its marginal tax rate is 25%. Should Chen buy the new machine?Lowell Inc. is thinking about replacing an old computer with a new one. The new one will cost $1,000,000 and will have a life of FOUR years. The new computer qualifies as 5-year MACRS property. Years Depreciation rate 1 20% 12 32% 3 19% 14 12% It will probably be worth about $340,000 after FOUR years. The old computer is being depreciated at a rate of $110,000 per year. It will be completely written off in FOUR years, at that time it will have zero resale value. We can sell it now for $330,000 after taxes. The new machine will save us $200,000 per year in operating costs. The tax rate (federal plus state) is 25 percent and WACC is 8 percent. What is the TOTAL FREE CASH FLOW FOR YEAR 4? Free cash flow = Total Initial Investment + Total annual project CF + Total Salvage Value 430,000 422,500 450,000 442,500Tyrell Corp. is considering replacing a machine. The old one is currently being depreciated at $70,000 per year (straight-line), and is scheduled to end in five years with no remaining book value. If you don’t replace it, you will be lucky to get it removed for the amount you could salvage it for, so you don’t expect any profit in five years. If you replace the old machine now, you believe you can salvage it for $375,000 and buy a new machine for $850,000, plus $25,000 shipping fee and another $25,000 for installation. The new machine will not change the revenue or NOWC, but it will reduce the operating costs of the company by $145,000 per year. The new machine will be depreciated using the three-year MACRS schedule (the table is provided on the Moodle for your convenience). The useful life of this machine is five years, and it is expected that the machine can be sold at $20,000 at the end of the five years. Assume a tax rate of 25% and the cost of capital for the company is 8%.…
- Tyrell Corp. is considering replacing a machine. The old one is currently being depreciated at $70,000 per year (straight-line), and is scheduled to end in five years with no remaining book value. If you don't replace it, you will be lucky to get it removed for the amount you could salvage it for, so you don't expect any profit in five years. If you replace the old machine now, you believe you can salvage it for $375,000 and buy a new machine for $850,000, plus $25,000 shipping fee and another $25,000 for installation. The new machine will not change the revenue or NOWC, but it will reduce the operating costs of the company by $145,000 per year. The new machine will be depreciated using the three-year MACRS schedule (the table is provided on the Moodle for your convenience). The useful life of this machine is five years, and it is expected that the machine can be sold at $20,000 at the end of the five years. Assume a tax rate of 25% and the cost of capital for the company is 8%.…Ned Tech Corporation is considering replacing one of its machines with a more efficient one. The old machine has a book value of $60,000 and a remaining useful life of 5 years. It can sell the old machine now for $ 265,000. The old machine is being depreciated by 120,000 per year straight line. The new machine has a purchase price of $ 1,175,000, an estimated useful life, five years of MACRS class life, and a salvage value of $145,000. Annual economic savings is $255,000 if the new machine is installed. Taxes are 21%, and WACC is 12. The depreciation Table for MACS is on page 176, Table 3. a. Calculate the NPV and IRR of the project and decide whether to accept or reject the project and why? b. What is the importance of cash flow to a company.The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $71,000. The machine would replace an old piece of equipment that costs $18,000 per year to operate. The new machine would cost $8,000 per year to operate. The old machine currently in use is fully depreciated and could be sold now for a salvage value of $26,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%) 1. Depreciation expense 2. Incremental net operating income 3. Initial investment 4.…
- The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $59,000. The machine would replace an old piece of equipment that costs $15,000 per year to operate. The new machine would cost $7,000 per year to operate. The old machine currently in use is fully depreciated and could be sold now for a salvage value of $25,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.)The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $50,000. The machine would replace an old piece of equipment that costs $13,000 per year to operate. The new machine would cost $6,000 per year to operate. The old machine currently in use is fully depreciated and could be sold now for a salvage value of $21,000. The new machine would have a useful life of 10 years with no salvage value? What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.)Big Tech Corporation is considering replacing one of its machines with a more efficient one. The old machine has a book value of $60,000 and a remaining useful life of 5 years. It can sell the old machine now for $ 265,000. The old machine is being depreciated by 120,000 per year straight line. The new machine has a purchase price of $ 1,175,000, an estimated useful life, five years of MACRS class life, and a salvage value of $145,000. Annual economic savings is $255,000 if the new machine is installed. Taxes are 21%, and WACC is 12. Depreciation Table: 5 Years 1 : .20 2: .32 3: .1920 4: .1152 5: .1152 Calculate the NPV and IRR of the project and decide whether to accept or reject the project and why? (SHOW ALL WORK in EXCEL ONLY and include EXCEL FORUMLAS TABLE).
- Big Tech Corporation is considering replacing one of its machines with a more efficient one. The old machine has a book value of $60,000 and a remaining useful life of 5 years. It can sell the old machine now for $ 265,000. The old machine is being depreciated by 120,000 per year straight line. The new machine has a purchase price of $ 1,175,000, an estimated useful life, five years of MACRS class life, and a salvage value of $145,000. Annual economic savings is $255,000 if the new machine is installed. Taxes are 21%, and WACC is 12. Depreciation Table: 5 Years 1 : .20 2: .32 3: .1920 4: .1152 5: .1152 Calculate the NPV and IRR of the project and decide whether to accept or reject the project and why? (SHOW ALL WORK in EXCEL ONLY and include EXCEL FORUMLAS TABLE). Help is appreciated, everyone who has undertaken this question has given different answers and Im not understanding why.The great tech company is considering replacing one of its machines with a more efficient one. The old machine has a book value of $60,000 and a remaining useful life of 5 years. It can sell the old machine now for $ 265,000. The old machine is being depreciated by 120,000 per year straight line. The new machine has a purchase price of $ 1,175,000 an estimated useful life and 5 years MACRS class life and salvage value of $145,000. Annual economic savings is $255,000 if new machine is installed. Taxes 35% and WACC is 12. Calculate the NPV and IRR of the project and make a decision on accepting the project and why? If expected life of existing machine decreased what effect does this have on the cash flow, discuss only? No calculations needed, just discuss.A robotics firm decides to install the latest computer server at a cost of $2 million which is going to increase its computational capacity. The installation cost is $200,000. The firm decides to use the server for the next eight years and then sell it at a price of $200,000. Using a straight line method, what will be the annual depreciation amount?