. Consider a new line of equipment that will cost $1.7 million and will save a...

. Consider a new line of equipment that will cost $1.7 million and will save a company $300,000 in operating expenses for the next ten years. The estimated salvage value in ten years is $250,000. The new equipment will not affect sales, but it will result in an increase in Net Working Capital of $230,000.

The new line will replace an old line of equipment that will last for four more years before it could be scrapped for $75,000. If sold today, the old equipment is worth $180,000. The old equipment was purchased five years ago for $1.1m and is being depreciated using the MACRS 7-year rates. The new equipment will also be depreciated using the 7-year rates. The company’s marginal tax rate is 30% and their cost of capital is 10%.

Calculate the NPV and IRR of this replacement project. What is the breakeven salvage value for the new machinery? (20 pts.)

MACRS 7-year rates:

0.1429

0.2449

0.1749

0.1249

0.0893

0.0892

0.0893

0.0446

Expert Solution

jeff jeffy answered 1 month ago

Alteran Corporation purchased office equipment for $1.7 million at the beginning of 2019. The equipment is...

Alteran Corporation purchased office equipment for $1.7 million at the beginning of 2019. The equipment is being depreciated over a 10-year life using the double-declining-balance method. The residual value is expected to be $800,000. At the beginning of 2021 (two years later), Alteran decided to change to the straight-line depreciation method for this equipment. Prepare the journal entry to record depreciation for 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account...

The new equipment will cost $7,500. And it would be depreciated on a straight-line basis over...

The new equipment will cost $7,500. And it would be depreciated on a straight-line basis over the project's 5-year life (depreciation rate is 20% per year) and would require additional $200 net operating working capital that would be recovered at the end of the project's life. There is no salvage value. After purchasing this equipment, firm could sell 1000 products per year at $6 per one. And operating costs is 50% of sale revenue. Tax rate is 40% and Weighted...

Jamaica Corp. is adding a new assembly line at a cost of $8.5 million. The firm...

Jamaica Corp. is adding a new assembly line at a cost of $8.5 million. The firm expects the project to generate cash flows of $2 million, $3 million, $4 million, and $5 million over the next four years. Its cost of capital is 16 percent. What is the internal rate of return (IRR) that Jamaica can earn on this project and should the project be accepted? (Round to the nearest percent)? A. 18 percent, yes because IRR > r B....

Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $9 million,...

Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $9 million, and production and sales will require an initial $4 million investment in net operating working capital. The company's tax rate is 40%. What is the initial investment outlay? Enter your answer as a positive value. Enter your answer in dollars. For example, an answer of $1.2 million should be entered as $1,200,000. Round your answer to the nearest dollar. $ The company spent and...

Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $20 million,...

Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $20 million, and production and sales will require an initial $5 million investment in net operating working capital. The company's tax rate is 40%. What is the initial investment outlay? Write out your answer completely. For example, 2 million should be entered as 2,000,000. $___ The company spent and expensed $150,000 on research related to the new project last year. Would this change your answer? -Select-...

Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $10 million,...

Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $10 million, and production and sales will require an initial $5 million investment in net operating working capital. The company's tax rate is 35%. What is the initial investment outlay? Write out your answer completely. For example, 2 million should be entered as 2,000,000. The company spent and expensed $150,000 on research related to the new project last year. Would this change your answer? Rather than...

Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $16 million,...

Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $16 million, and production and sales will require an initial $1 million investment in net operating working capital. The company's tax rate is 35%. What is the initial investment outlay? Write out your answer completely. For example, 2 million should be entered as 2,000,000. $ The company spent and expensed $150,000 on research related to the new project last year. Would this change your answer? -Select-YesNoItem...

You consider a new piece of equipment that will cost $400,000, and will require $20,000 for...

You consider a new piece of equipment that will cost $400,000, and will require $20,000 for shipping and installation. NWC will increase immediately by $25,000. The project will last 3 years and the equipment has a 5 year class life. Revenues will increase by $220,000/year, and defect costs will decrease by $220,000/year. Operating costs will increase by $30,000/year. The market value of the equipment after year 3 is $200,000. The cost of capital is 12%; marginal tax rate is 30%....

Bourque Enterprises is considering a new project. The project will generate sales of $1.7 million, $2.4...

Bourque Enterprises is considering a new project. The project will generate sales of $1.7 million, $2.4 million, $2.3 million, and $1.8 million over the next four years, respectively. The fixed assets required for the project will cost $2.7 million and will be eligible for 100 percent bonus depreciation. At the end of the project, the fixed assets can be sold for $185,000. Variable costs will be 25 percent of sales and fixed costs will be $475,000 per year. The project...

The Barnstormer Corp. needs new equipment that would cost $3.5 million and would fall into the...

The Barnstormer Corp. needs new equipment that would cost $3.5 million and would fall into the MACRS 5-year class for depreciation purposes. Maintenance would be $160,000 per year, payable at the beginning of each year, if they buy the equipment themselves. They could borrow at a 9% rate of interest, before tax, if they were to buy the equipment directly. They plan on using the equipment for 5 years before it will need to be replaced with something more modern....

Question