The cost of the new machine is $127,000.Installation will cost $20,000.$4,000 in net working capital will be needed at the time of installation.The project will increase revenues by $85,000 per year, but operating costs will increase by 35% of the revenue increase.Simplified straight line depreciation is used.Class life is 5 years, and the firm is planning to keep the project for 5 years.Salvage value at the end of year 5 will be $50,000.14% cost of capital; 34% marginal tax rate. /////// The depreciation is 29400. How do I get this result? Could you please show me how to get depreciation by NOT using excel but calculation?

Part 2: ExplanationStep 1: Calculate the Initial InvestmentThe initial investment includes the cost…

Answered: The cost of the new machine is…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 5P

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Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return In Excel, see Appendix C.
Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.
Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $420,000 and will generate $95,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further Instructions on internal rate of return in Excel, see Appendix C.
The Ham and Egg Restaurant is considering an investment in a new oven that has a cost of $60,000, with annual net cash flows of $9,950 for 8 years. The required rate of return is 6%. Compute the net present value of this investment to determine whether or not you would recommend that Ham and Egg invest in this oven.
Manzer Enterprises is considering two independent investments: A new automated materials handling system that costs 900,000 and will produce net cash inflows of 300,000 at the end of each year for the next four years. A computer-aided manufacturing system that costs 775,000 and will produce labor savings of 400,000 and 500,000 at the end of the first year and second year, respectively. Manzer has a cost of capital of 8 percent. Required: 1. Calculate the IRR for the first investment and determine if it is acceptable or not. 2. Calculate the IRR of the second investment and comment on its acceptability. Use 12 percent as the first guess. 3. What if the cash flows for the first investment are 250,000 instead of 300,000?
The initial cost of a new machine is $10,000. The annual operating cost is $1,000/yr for first 3 years, and then becomes $3,000/yr after that. The machine needs a major repair at the end of 5th year, which costs $5,000. The machine has 10 years useful life with salvage value of $4,000. Calculate EUAC for keeping the machine for 10 years. (i=10%/yr)
Johnson inc. is about to start a two year project. It will require an upfront investment of $200,000 in a new machine to get started (this initial investment will be made today, at time t = 0). At the end of year one (time t = 1), the project will generate sales of $418,000, costs of good sold of $384,000, and depreciation expense of $100,000. At the end of year two, the project will generate sales of $728,000, costs of good sold of $481,000, and depreciation expense of $100,000. To get started, an investment in working capital of $232,000 is needed at time t = 0. None of the working capital will be recouped at the end of the project, and at the end, the machine will also be scrapped. What is the NPV of the project if the opportunity cost of capital is 12% and the tax rate is 31%?
Romagnoli Company is considering a 3-year investment project that involves the purchase of a new manufacturing equipment that costs $90,000 today. The equipment will be depreciated on a straight-line basis over 3 years at a rate of 33.33% per year. The company expects the salvage value of the equipment will equal zero at the end of year three. However, the company expects to sell the equipment at the end of third year to generate $10,000 after tax cash inflow. The utilization of the equipment will increase the company’s net operating working capital at the beginning of the project by $13,000 but this amount will be recovered at the end of the project. The equipment is expected to generate revenues of $ 81,000 in the first year, and then revenues will grow by 1.5% per year after the first year. The operating costs (excluding depreciation) are expected to be $35,000 in the first year and then operating costs will grow by 1.5% per year after the first year. The company tax rate is 35%…

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