Question

In: Economics

A company is considering the purchase of an industrial laser for $150,000. The device has a...

A company is considering the purchase of an industrial laser for $150,000. The device has a useful life of five years and a salvage (market) value of $30,000 at the end of those five years. The before-tax cash flow is estimated to be $45,000 per year. The laser would be depreciated using MACRS with a recovery period of three years. If the effective income tax is 25% and the after-tax MARR is 15%, use the PW method on an after-tax basis to determine the profitability of the laser and make a recommendation.

Solutions

Expert Solution

Solution :-

Book value of Device after 5 years = $150,000 * 5.76% = $8,640

Market Value of Device after five years = $30,000

Now Profit on Sale = $30,000 - $8,640 = $21,360

Tax on Profit = $21,360 * 0.25 = $5,340

Now After tax Salvage Value = $30,000 - $5,340 = $24,660

Accept the Project as Net Present Worth is Positive of the Project

As in case of NPV we accept the Project if NPV is greater than or equal to Zero.

If there is any doubt please ask in comments

Thank you please rate .....


Related Solutions

A company is considering the purchase of an industrial laser for $150,000. The device has a...
A company is considering the purchase of an industrial laser for $150,000. The device has a useful life of five years and a salvage (market) value of $30,000 at the end of those five years. The before-tax cash flow is estimated to be $45,000 per year. The laser would be depreciated using MACRS with a recovery period of three years. If the effective income tax is 25% and the after-tax MARR is 15%, use the PW method on an after-tax...
A company is considering the purchase of an industrial laser for $150,000. The device has a...
A company is considering the purchase of an industrial laser for $150,000. The device has a useful life of five years and a salvage (market) value of $30,000 at the end of those five years. The before-tax cash flow is estimated to be $45,000 per year. The laser would be depreciated using MACRS with a recovery period of three years. If the effective income tax is 25% and the after-tax MARR is 15%, use the PW method on an after-tax...
A company is considering the purchase of an industrial laser for $150,000. The device has a...
A company is considering the purchase of an industrial laser for $150,000. The device has a useful life of five years and a salvage (market) value of $30,000 at the end of those five years. The before-tax cash flow is estimated to be $45,000 per year. The laser would be depreciated using MACRS with a recovery period of three years. If the effective income tax is 25% and the after-tax MARR is 15%, use the PW method on an after-tax...
Please show your calculations A company is considering the purchase of an industrial laser for $150,000....
Please show your calculations A company is considering the purchase of an industrial laser for $150,000. The device has a useful life of five years and a salvage (market) value of $30,000 at the end of those five years. Annual revenues are estimated to be $55,000 per year. Annual expenses are guaranteed to be $10,000 per year. Using a MARR = 18%, determine how sensitive the decision is to changes in the estimate of annual revenues? Express your answer as...
A firm is considering the purchase of a new machine at a price of $150,000.  The machine...
A firm is considering the purchase of a new machine at a price of $150,000.  The machine falls into the three-year MACRS class. If the new machine is acquired, the firm's investment in net working capital will immediately increase by $10,000 and then remain at that level throughout the life of the project. At the end of 3 years, the new machine can be sold for $16,000. Earnings before depreciation, interest and taxes (EBDIT) are expected to be as follows with...
An​ auto-part manufacturing company is considering the purchase of an industrial robot to do spot​ welding,...
An​ auto-part manufacturing company is considering the purchase of an industrial robot to do spot​ welding, which is currently done by skilled labor. The initial cost of the robot is ​$300 comma 000​, and the annual labor savings are projected to be ​$150 comma 000. If​ purchased, the robot will be depreciated under MACRS as a​ seven-year recovery property. This robot will be used for five years after which the firm expects to sell it for ​$70 comma 000. The​...
An industrial engineer is considering two robots for purchase by a fiber optic manufacturing company. Robot...
An industrial engineer is considering two robots for purchase by a fiber optic manufacturing company. Robot X will have a first cost of $125,000, an annual maintenance and operation (M&O) cost of $40,000, and a $60,000 salvage value. Robot Y will have a first cost of $145,000, an annual M&O cost of $33,000, and a $65,000 salvage value. Which should be selected on the basis of an annual worth comparison of 9% per year? Use a 3-year study period. Interest...
An​ auto-part manufacturing company is considering the purchase of an industrial robot to do spot​ welding,...
An​ auto-part manufacturing company is considering the purchase of an industrial robot to do spot​ welding, which is currently done by skilled labor. The initial cost of the robot is $250,000, and the annual labor savings are projected to be $125,000. If​ purchased, the robot will be depreciated under MACRS as a​ seven-year recovery property. This robot will be used for five years after which the firm expects to sell it for $50,000. The​ company's marginal tax rate is 25%...
An auto-part manufacturing company is considering the purchase of an industrial robot to do spot welding,...
An auto-part manufacturing company is considering the purchase of an industrial robot to do spot welding, which is currently done by skilled labor. The initial cost of the robot is $250,000, and the annual labor savings are projected to be $125,000. If purchased, the robot will be depreciated under MACRS as a seven-year recovery property. This robot will be used for five years after which the firm expects to sell it for $50,000. The company’s marginal tax rate is 25%...
Somebody has a theory predicting that when a laser device with frequency f moves towards an...
Somebody has a theory predicting that when a laser device with frequency f moves towards an observer at speed V, the observer measures a frequency f’= f/(1-V/c), while if the device is at rest and the observer moves towards it, he measures f’=f(1+V/c). In both cases, f’>f, which seems reasonable. Using the Special theory of Relativity heuristically, discuss whether this theory can be correct or not.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT