Suppose a new machine costs $100,000 and will provide nominal operating income of $50,000 in each of the next four years. The machine belongs to asset class 9, which has a CCA rate of 30%. The machine is expected to be sold for $25,000 at the end of four years. The real discount rate has been estimated to be 8% per year. Expected inflation is 2.5% over the next four years. The firm's marginal tax rate is 38%. Assume there are other assets in the asset class when the machine is sold and that the half-year rule applies in year one. What is the NPV of the project? A $44,427.84 B $107,358.25 © $35,435.82 (D) $94,761.86

Suppose a new machine costs $100,000 and will provide nominal operating income of $50,000 in each of the next four years. The machine belongs to asset class 9, which has a CCA rate of 30%. The machine is expected to be sold for $25,000 at the end of four years. The real discount rate has been estimated to be 8% per year. Expected inflation is 2.5% over the next four years. The firm's marginal tax rate is 38%. Assume there are other assets in the asset class when the machine is sold and that the half-year rule applies in year one. What is the NPV of the project? A $44,427.84 B $107,358.25 © $35,435.82 (D) $94,761.86

Name: Suppose a new machine costs $100,000 and will provide nominal operatin
Uploaded: 2024-03-20T06:50:59.000Z
Channel: Bartleby
Description: Suppose a new machine costs $100,000 and will provide nominal operating income of $50,000 in each of the next four years. The machine belongs to asset class 9, which has a CCA rate of 30%. The machine is expected to be sold for $25,000 at the end of

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 3P

See similar textbooks

Similar questions

Towson Industries is considering an investment of $256,950 that is expected to generate returns of $90,000 per year for each of the next four years. What Is the Investments internal rate of return?
An investment of $200,000 is required to expand a certain production facility in a manufacturing company. The firm estimates that labor costs will be $150,000 for the first year but will increase at the rate of 8% over the previous year’s expenditure. Material costs, on the other hand, will be $400,000 for the first year but will increase at the rate of 10% per year due to inflation. If the firm’s inflation-free interest rate (i′) is 20% and the average general inflation rate (f) is expected to be 15% over the next 5 years, determine the total present equivalent operating expenses (with no tax consideration) for the project. Please show step by step answer.
A company has purchased a new piece of machinery for $100,000. The estimate it will result in annual cost savings of $15,000 per year, this will increase every year by $500. The machinery will last for 8 years, at which time it will be sold for $7,000. What is the company's BEFORE tax rate of return? The company estimates a federal tax rate of 21%. What is their AFTER tax rate of return?
A construction firm needs a new small loader. It can be purchased for $20,000. The firm expects the loader to have a salvage value of $6,000 after 7 years. The maintenance cost will be $1,400 each year. The firm's interest rate is 1% per year. Compute the Equivalent Uniform Annual Worth (EUAW).
You want to buy a new plant with a price of Rs. 400,000. The borrowing cost is 10% interest rate to be paid at the end of each year. If it is purchased, the maintenance fee is Rs.10,000 per year paid at the end of each year. The depreciation falls in the MACRS 5-year class, rates are 30%, 20%, 10%, and 09%. The tax is 40%. Alternatively, the plant can be taken on lease for Rs. 85,000 upon delivery with 4 more annual rentals of Rs. 85,000 to be made at the end. This alternative includes maintenance requirement. After 04 years the asset’s salvage value is expected to be Rs. 20, 000. Required: What do you suggest should the plant be leased or purchased? Why? Create a dummy Balance Sheet of your own with dummy values of Assets and Liabilities and show the accounting treatment of operating and financial leases with brief explanation of each.
A company is considering buying a CNC machine. In today's dollars, it is estimated that the maintenance costs for the machine (paid at the end of each year) will be $29,000, $31,000, $32,000, $33,000, and $35,000 for years 1 to 5, respectively. The general inflation rate (F) is estimated to be 6% per year, and the company will receive 14% return (interest) per year on its invested funds during the inflationary period. The company wants to pay for maintenance expenses in equivalent equal payments (in actual dollars) at the end of each of the five years. Find the amount of the company's payments. C The amount of the company's payments is $ thousand. (Round to the nearest thousand.)
A corporation is considering purchasing a machine that will save $150,000 per year before taxes. The cost of operating the machine (including maintenance) is $30,000 per year. The machine will be needed for five years, after which it will have azero salvage value. MACRS depreciation will be used, assuming a three-year class life. The marginalincome tax rate is 40%. If the firm wants 15% return on investment after taxes, how much can it afford topay for this machine? [use closes approximate value]
Consider a machine that costs P20,000 and has a five years useful life. At the end of the five years, it can be sold for P4,000 after tax adjustment. The annual operating and maintenance (O&M) costs are about P50o. If the firm could earn an after-tax revenue of P5,000 per year with this machine, should it be purchased at an interest rate of 10%?
A company is deciding whether to lease or buy new equipment. The equipment can be purchased for $70,000 or leased for a 5-year period for $8,000 per year (due at the beginning of each year). The firm can borrow at 14%. The equipment has a CCA rate of 25%. Salvage value in 5 years is expected to be $4,000. The company's marginal tax rate is 33%. Calculate PV CCATS. Round the PV CCATS to 2 decimals (e.g 22.05), and the unit is $. Your Answer: Answer units
Zwango Plus Manufacturing expects that fixed costs of keeping its Zephyr Hills Plant operating will be $2.1M this year. If the fixed costs increase by $125,000 each year, what is the EUAC for a 15-year period? Assume the interest rate is 10%.
A company is considering the purchase of a new machine for P480,000. Management predicts that the machine can produce sales of P180,000 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling P120,000 per year including depreciation of P30,000 per year. The company's tax rate is 40%. What is the payback period for the new machine?
Nokela Industries purchases a $42.0 million cyclo-converter. The cyclo-converter will be depreciated by $10.5 million per year over four years, starting this year. Suppose Nokela's tax rate is 25%. a. What impact will the cost of the purchase have on earnings for each of the next four years? b. What impact will the cost of the purchase have on the firm's cash flow for the next four years? a. What impact will the cost of the purchase have on earnings for each of the next four years? Earnings will ▼ by $enter your response here million each year for four years. (Select from the drop-down menu and round to one decimal place.) Part 2 b. What impact will the cost of the purchase have on the firm's cash flow for the next four years? The impact on the firm's cash flow in year 1 is $enter your response here million. (Round to one decimal place.) Part 3 The impact on the firm's cash flow in years two through four is $enter your response here million. (Round to one decimal place.)