Question
In: Finance
To upgrade technology. The price of the machine being considered is $210,000. Installation cost are $20,000....
To upgrade technology. The price of the machine being
considered is $210,000. Installation cost are $20,000. They expect
the increased sales (net of expenses except for depreciation) or
EBITDA to be 80,000 for year 1, 130,000 year 2, and 70,000 year 3.
The machine can be sold for $40,000 at the end of the project. Tax
rate 40%. MACRS 3 years.
a. What is the terminal value?
b. If WACC is 10.65%, what is the NPV?
c. Using same information. But now WACC is 10.65%, what is the
IRR?
d. Using same information, with WACC 10.65%. What is the payback
period?
e. Based on NPR and IRR, should they purchase the new
equipment?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
Cheetah Copy purchased a new copy machine. The new machine cost $110,000 including installation. The company...
Cheetah Copy purchased a new copy machine. The new machine cost
$110,000 including installation. The company estimates the
equipment will have a residual value of $27,500. Cheetah Copy also
estimates it will use the machine for four years or about 8,000
total hours. Actual use per year was as follows:
Year
Hours Used
1
2,000
2
1,600
3
2,000
4
3,200
1. Prepare a depreciation schedule for four
years using the straight-line method. (Do not round your
intermediate calculations.)
2....
Cheetah Copy purchased a new copy machine. The new machine cost $136,000 including installation. The company...
Cheetah Copy purchased a new copy machine. The new machine cost
$136,000 including installation. The company estimates the
equipment will have a residual value of $34,000. Cheetah Copy also
estimates it will use the machine for four years or about 8,000
total hours. Actual use per year was as follows:
Year
Hours Used
1
2,900
2
1,900
3
1,900
4
3,500
2. Prepare a depreciation schedule for four
years using the double-declining-balance method.
CHEETAH COPY
Depreciation
Schedule—Double-Declining-Balance
End of Year...
Cheetah Copy purchased a new copy machine. The new machine cost $114,000 including installation. The company...
Cheetah Copy purchased a new copy machine. The new machine cost
$114,000 including installation. The company estimates the
equipment will have a residual value of $28,500. Cheetah Copy also
estimates it will use the machine for four years or about 8,000
total hours. Actual use per year was as follows: Year Hours Used 1
2,000 2 2,000 3 2,000 4 3,200 2. Prepare a depreciation schedule
for four years using the double-declining-balance method. (Hint:
The asset will be depreciated in...
Cheetah Copy purchased a new copy machine. The new machine cost $114,000 including installation. The company...
Cheetah Copy purchased a new copy machine. The new machine cost
$114,000 including installation. The company estimates the
equipment will have a residual value of $28,500. Cheetah Copy also
estimates it will use the machine for four years or about 8,000
total hours. Actual use per year was as follows: Year Hours Used 1
2,000 2 2,000 3 2,000 4 3,200 3. Prepare a depreciation schedule
for four years using the activity-based method. (Round your
"Depreciation Rate" to 3 decimal...
Cheetah Copy purchased a new copy machine. The new machine cost $130,000 including installation. The company...
Cheetah Copy purchased a new copy machine. The new machine cost
$130,000 including installation. The company estimates the
equipment will have a residual value of $32,500. Cheetah Copy also
estimates it will use the machine for four years or about 8,000
total hours. Actual use per year was as follows: Year Hours Used 1
2,000 2 2,000 3 2,000 4 3,200 1. Prepare a depreciation schedule
for four years using the straight-line method. 2. Prepare a
depreciation schedule for four...
2. An automatic welding machine is being considered for use in a production process. It will...
2. An automatic welding machine is being considered for use in
a production process. It will be considered for purchase if it is
successful on 99% of its welds. Otherwise, it will not be
considered efficient. A test is to be conducted with a prototype
that is to perform 100 welds. The machine will be accepted for
manufacture if it misses no more than 3 welds. (a) What is the
probability that a good machine will be rejected? (b) What...
A new machine will cost $600,000 including delivery and installation. The new unit has a CCA...
A new machine will cost $600,000 including delivery and
installation. The new unit has a CCA depreciation rate of 25
percent. At the end of four years, it will be sold for $100,000.
The net working capital requirement required at the beginning of
the first four years are $50,000, $60,000, $70,000, and
$60,000.
In the first year, revenue will increase by $150,000 and
operating costs will decrease by $30,000. The difference between
them, R−C, will grow at 3 percent. The...
3. A new machine will cost $600,000 including delivery and installation. The new unit has a...
3. A new machine will cost $600,000 including delivery and
installation. The new unit has a CCA depreciation
rate of 25 percent. At the end of four years, it will be sold
for $100,000. The net working capital requirement
required at the beginning of the rst four years are $50,000,
$60,000, $70,000, and $60,000.
In the rst year, revenue will increase by $150,000 and operating
costs will decrease by $30,000. The dierence
between them, R?C, will grow at 3 percent....
A purchased machine cost $320,000 with delivery and installation charges amounting to $30,000. The declared salvage...
A purchased machine cost $320,000 with delivery and installation
charges amounting to $30,000. The declared salvage value was
$50,000. Early in Year 3, the company changed its product mix and
found that it no longer needed the machine. One of its com-
petitors agreed to buy the machine for $180,000. Determine the
loss, gain, or recapture of MACRS depreciation on the sale. The ADR
is 12 years for this machine.
Exercise 6.9: These machine are being considered by a plant manager at Dover Industries Details for...
Exercise 6.9: These machine are being considered by a plant
manager at Dover Industries Details
for the
machine are shown in the table below. Calculate the NPW values for
the three machine over
12 years?
Inflation needs to be applied to the initial cost and yearly
costs
Machine A
Machine B
Machine C
Initial cost
$125,000
$229,500
$345,000
Life in years
3
6
12
Salvage as % of initial cost
15%
10%
5%
Benefits for 1st year
$55,000
$73,000
$99,000...
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