Question

In: Finance

A firm is considering the purchase of a new machine at a price of $108,000.  The machine...

A firm is considering the purchase of a new machine at a price of $108,000.  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 $15,000 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 $5,000. Earnings before depreciation, interest and taxes (EBDIT) are expected to be as follows with respect to the new machine:

Year 1: EBDIT = $55,000
Year 2: EBDIT = $62,000
Year 3: EBDIT = $87,000

The firm is subject to a 21 percent tax rate and the firm's discount rate is 8 percent.

Requirement 1:
Calculate the missing data in the table below for each year over the life of this project. (Do not round intermediate calculations. Round your answers to the nearest whole dollar (e.g., 32).)
Year EBDIT Depreciation EBIT Taxes
1 $55,000 $ $ $
2 $62,000 $ $ $
3 $87,000 $ $ $
Requirement 2:
What is the book value of the machine at the end of Year 3? (Do not round intermediate calculations. Round your answer to the nearest whole dollar (e.g., 32).)
Book Value (End of Year 3) $
Requirement 3:
Calculate the taxes related to the sale of the asset at the end of the project and the after-tax salvage value of the machine. (Do not round intermediate calculations. Net tax savings should be indicated by a minus sign. Round your answer to the nearest whole dollar (e.g., 32).)
Taxes $
After-Tax Salvage Value $
Requirement 4:

What is the net cash flow of the project for each of the following years? (Do not round intermediate calculations. Net cash outflows should be indicated by a minus sign. Round your answers to the nearest whole dollar (e.g., 32).)

  

Year Cash Flow
0 $   
1   
2   
3   

  

Requirement 5:

What is the NPV of the project? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

  

  NPV $   

  

Solutions

Expert Solution


Related Solutions

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...
A firm is considering the purchase of a new machine at a price of $120,000.  The machine...
A firm is considering the purchase of a new machine at a price of $120,000.  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 $15,000 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 $5,000. Earnings before depreciation, interest and taxes (EBDIT) are expected to be as follows with...
A firm is considering the purchase of a new machine at a price of $200,000.  The machine...
A firm is considering the purchase of a new machine at a price of $200,000.  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 $20,000 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 $40,000. Earnings before depreciation, interest and taxes (EBDIT) are expected to be as follows with...
Simmons Company is considering the purchase price of a new floor machine. The purchase price of...
Simmons Company is considering the purchase price of a new floor machine. The purchase price of the equipment is $420,000 and it is expected to have a useful life of 7 years with no salvage value. The company uses straight line depreciation and pays income taxes at a rate of 25%. If the company requires that all new equipment investments pay for themselves within 3 years, how much annual cash operating savings must the floor machine generate, if it is...
Aurora Company is considering the purchase of a new machine. The invoice price of the machine...
Aurora Company is considering the purchase of a new machine. The invoice price of the machine is $123,000, freight charges are estimated to be $4,000, and installation costs are expected to be $5,000. Salvage value of the new equipment is expected to be zero after a useful life of 5 years. Existing equipment could be retained and used for an additional 5 years if the new machine is not purchased. At that time, the salvage value of the equipment would...
You are evaluating a proposal to buy a new milling machine. The base price is $108,000...
You are evaluating a proposal to buy a new milling machine. The base price is $108,000 and shipping and installation costs would add another $12,500. The machine would be sold after 3 years for $65,000. The machine would require a $5,500 increase in net working capital (inventory). There would be revenues of $44,000 per year and cost of $10,000 per year. The company's tax rate is 35%, and the cost of capital (WACC) is 12%. Also the firm spent $15,000...
You are evaluating a proposal to buy a new milling machine. The base price is $108,000...
You are evaluating a proposal to buy a new milling machine. The base price is $108,000 and shipping and installation costs would add another $12,500. The machine would be sold after 3 years for $65,000. The machine would require a $5,500 increase in net working capital (inventory). There would be revenues of $44,000 per year and cost of $10,000 per year. The company's tax rate is 35%, and the cost of capital (WACC) is 12%. Also the firm spent $15,000...
A firm is considering an investment in a new machine with a price of $18.06 million...
A firm is considering an investment in a new machine with a price of $18.06 million to replace its existing machine. The current machine has a book value of $6.06 million and a market value of $4.56 million. The new machine is expected to have a four-year life, and the old machine has four years left in which it can be used. If the firm replaces the old machine with the new machine, it expects to save $6.76 million in...
A firm is considering an investment in a new machine with a price of $18.06 million...
A firm is considering an investment in a new machine with a price of $18.06 million to replace its existing machine. The current machine has a book value of $6.06 million and a market value of $4.56 million. The new machine is expected to have a four-year life, and the old machine has four years left in which it can be used. If the firm replaces the old machine with the new machine, it expects to save $6.76 million in...
A firm is considering an investment in a new machine with a price of $18.06 million...
A firm is considering an investment in a new machine with a price of $18.06 million to replace its existing machine. The current machine has a book value of $6.06 million and a market value of $4.56 million. The new machine is expected to have a four-year life, and the old machine has four years left in which it can be used. If the firm replaces the old machine with the new machine, it expects to save $6.76 million in...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT