Question
In: Finance
A company must develop the relevant cash flows for a replacement capital investment proposal. The proposed...
A company must develop the relevant cash flows for a replacement capital investment proposal. The proposed asset costs $50,000 and has installation costs of $3,000. The asset will be depreciated using a five-year recovery schedule. The existing equipment, which originally cost $25,000 and will be sold for $10,000, has been depreciated using an MACRS five-year recovery schedule and three years of depreciation has already been taken. The new equipment is expected to result in incremental before-tax net profits of $15,000 per year. The firm has a 40 percent tax rate. Note: Assume that both the old and the new equipment will have terminal values of $0 at the end of year 5. The WACC for the company is 10%.
1- determine the NPV
2- determine the IRR
3- should it reject or accept the replacement and explain why
PLEASE SHOW ALL WORK THROUGH EXCEL!!!!!!!!!
Solutions
jeff jeffy answered 7 months agoRelated Solutions
A company must develop the relevant cash flows for a replacement capital investment proposal. The proposed...
A company must develop the relevant cash flows for a replacement
capital investment proposal. The proposed asset costs $50,000 and
has installation costs of $3,000. The asset will be depreciated
using a five-year recovery schedule. The existing equipment, which
originally cost $25,000 and will be sold for $10,000, has been
depreciated using an MACRS five-year recovery schedule and three
years of depreciation has already been taken. The new equipment is
expected to result in incremental before-tax net profits of $15,000...
CME Inc. must develop the relevant cash flows for a replacement capital investment proposal. The proposed...
CME Inc. must develop the relevant cash flows for a replacement
capital investment proposal. The proposed asset costs $50,000 and
has installation costs of $3,000. The asset will be depreciated
using a five-year recovery schedule. The existing equipment, which
originally cost $25,000 and will be sold for $10,000, has been
depreciated using an MACRS five-year recovery schedule and three
years of depreciation has already been taken. The new equipment is
expected to result in incremental before-tax net profits of $15,000...
Suda Marine Engines, Inc. must develop the relevant cash flows for a replacement capital investment proposal....
Suda Marine Engines, Inc. must develop the relevant cash flows
for a replacement capital investment proposal. The proposed asset
costs $50,000 and has installation costs of $5,000 and will be put
into operation for the next three years. The asset will be
depreciated using a three-year recovery schedule (with MARCS
depreciation rates of 45%, 33%, 15%, 7% for years 1 to 4). The
existing equipment, which originally cost $25,000 is fully
depreciated and has no salvage value today. The new...
Cuda Marine Engines, Inc. must develop the relevant cash flows for a replacement capital investment proposal....
Cuda Marine Engines, Inc. must develop the relevant cash flows
for a replacement capital investment proposal. The proposed asset
costs $50,000 and has installation costs of $3,000. The asset will
be depreciated using a five-year recovery schedule. The existing
equipment, which originally cost $25,000 and will be sold for
$10,000, has been depreciated using an MACRS five- year recovery
schedule and three years of depreciation has already been taken.
The new equipment is expected to result in incremental before-tax
net...
Cuda Marine Engines, Inc. must develop the relevant cash flows for a replacement capital budgeting project....
Cuda Marine Engines, Inc. must develop the relevant cash flows
for a replacement capital budgeting project. The proposed asset
costs $50,000 and has installation costs of $3,000. The asset will
be depreciated using the MACRS five year recovery schedule. The
existing equipment was purchased three years ago which orginally
cost $25,000, has been depreciated using MACRS 5-year period. The
new equipment is expected to result in an incremental increases in
revenue of $10,000 a year for five years and a...
Capital Budgeting: Estimating Cash Flows for an Investment A company is considering replacement of manufacturing equipment...
Capital Budgeting: Estimating Cash Flows for an
Investment
A company is considering replacement of manufacturing equipment
with computer controlled equipment, at a cost of $500,000,
replacing equipment with a scrap value of $50,000. This will reduce
defect costs by $150,000 a year. At the end of 7 years, the
equipment will be replaced and will have a scrap value of $100,000.
The interest charges for financing the purchase will be $25,000 a
year. The new system will be housed in...
Given the following cash flows for a proposed capital investment project, calculate the payback period. Year...
Given the following cash flows for a proposed capital investment
project, calculate the payback period.
Year
Cash Flow
0
-$40,000
1
15,000
2
15,000
3
15,000
4
15,000
5
10,000
6
10,000
Question 4 options:
5.50 years
3.33 years
4.33 years
2.67 years
The capital budgeting process is dependent on the anticipated cash flows generated by a proposed capital...
The capital budgeting process is dependent on the anticipated
cash flows generated by a proposed capital project. Research the
importance of the price to cash-flow ratio and the free-cash flow
in making managerial and investment decisions.
Cite at least one recent article in your post and provide a link
for your classmates.
Gen-X Industries is developing the incremental cash flows associated with the proposed replacement of an existing...
Gen-X Industries is developing the incremental cash flows
associated with the proposed replacement of an existing machine
tool with a new, technologically advanced one. Given the following
costs related to the proposed project, explain whether each would
be treated as a sunk cost or an opportunity cost in developing the
relevant cash flows associated with the proposed replacement
decision.
a. Gen-X would be able to use the same tooling, which had a
book value of $ 37,000 on the new...
What are relevant cash flows? Why should we only include these cash flows in our capital...
What are relevant cash flows? Why should we only include these
cash flows in our capital budgeting analysis? Please also give some
examples.
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