Question

In: Finance

DEF Corporation is considering purchasing a new production machine at a cost of $10,000,000. The machine...

DEF Corporation is considering purchasing a new production machine at a cost of $10,000,000. The machine is 7-year MACRS property. The corporate tax rate is a flat 21%, and the applicable discount rate is 6%.

a. Compute the after-tax cost of the machine to DEF.

b. Compute the after-tax cost of the machine to DEF, assuming that the machine qualifies for immediate expensing.

c. Comment.

MACRS percentages for depreciation each year are as follows:

   Year      %

     1     14.29
     2     24.49
     3     17.49
     4     12.49
     5      8.93
     6      8.92
     7      8.93
     8      4.46

Solutions

Expert Solution

jeff jeffy answered 11 months ago
Next > < Previous

Related Solutions

The BoomBoom Chemical Company is considering purchasing a new production machine. The machine has a cost...
The BoomBoom Chemical Company is considering purchasing a new production machine. The machine has a cost of $250,000 and would cost an additional $10,000 after-tax to install. If purchases, the machine will increase earnings before interest and tax by $70,000 per annum. To operate effectively, raw material inventory would need to be increased by $10,000. The machine has an expected life of 10 years and no salvage value. It will be depreciated straight line (prime cost) over its 10 year...
"A corporation is considering purchasing a vertical drill machine. The machine will cost $66,000 and will...
"A corporation is considering purchasing a vertical drill machine. The machine will cost $66,000 and will have a 2-year service life. The selling price of the machine at the end of 2 years is expected to be $43,000 in today's dollars. The machine will generate annual revenues of $62,000 (today's dollars), but the company expects to have annual expenses (excluding depreciation) of $12000 (today's dollars). The asset is classified as a 7-year MACRS property. The tax rate for the firm...
123 Inc. is considering purchasing a new machine. The machine will cost $3,250,000. The machine will...
123 Inc. is considering purchasing a new machine. The machine will cost $3,250,000. The machine will be used for a project that lasts 3 years. The expected salvage of the machine at the end of the project is $800,000. The machine will be used to produce widgets. The marketing department has forecasted that the company will be able to sell 280,000 widgets per year. The marketing department believes that the company will be able to charge $22 per widget. The...
A company is considering purchasing a new machine that would cost $60,000 and the machine would...
A company is considering purchasing a new machine that would cost $60,000 and the machine would be depreciated (straight line) down to $0 over its four year life. At the end of four years it is believed that the machine could be sold for $12,000. The machine would increase EBDT by $42,000 annually. the company's marginal tax rate is 34%. What the RATFCF’s associated with the purchase of this machine? $31,800 $32,820 $30,452 $29,940
As a financial manager, you are considering purchasing a new machine that will cost $1 million....
As a financial manager, you are considering purchasing a new machine that will cost $1 million. It can be depreciated on a straight-line basis for five years to a zero salvage value. You expect revenues from the machine to be $700,000 each year and expenses are expected to be 50% of revenue. If the company is taxed at a rate of 34% and the appropriate discount rate for a project of this level of risk is 15%, will the company...
Aliara Corporation is considering purchasing one of two new machines. Estimates for each machine are as...
Aliara Corporation is considering purchasing one of two new machines. Estimates for each machine are as follows: Machine A Machine B Investment $109,000 $154,900 Estimated life 9 years 9 years Estimated annual cash inflows $26,600 $39,700 Estimated annual cash outflows $6,400 $9,800 Salvage value for each machine is estimated to be zero. Click here to view PV table. Calculate the net present value of each project assuming a 5% discount rate. (If the net present value is negative, use either...
ABC Printing Corporation is considering purchasing a new printing machine. The following information relates to the...
ABC Printing Corporation is considering purchasing a new printing machine. The following information relates to the proposed machine: The proposed machine will be disposed at the end of its usable life of four years at an estimated sale price of K800 000. The machine has an original purchase price of K8 000 000, installation cost of K500 000, and will be depreciated under the five year WTA using the rates provided below. WTA Depreciation Schedule Year Depreciation Rate 1 25%...
Hillsong Inc. manufactures snowsuits. Hillsong is considering purchasing a new sewing machine at a cost of...
Hillsong Inc. manufactures snowsuits. Hillsong is considering purchasing a new sewing machine at a cost of $2.45 million. Its existing machine was purchased five years ago at a price of $1.8 million; six months ago, Hillsong spent $55,000 to keep it operational. The existing sewing machine can be sold today for $243,257. The new sewing machine would require a one-time, $85,000 training cost. Operating costs would decrease by the following amounts for years 1 to 7: Year 1 $390,900 2...
Hillsong Inc. manufactures snowsuits. Hillsong is considering purchasing a new sewing machine at a cost of...
Hillsong Inc. manufactures snowsuits. Hillsong is considering purchasing a new sewing machine at a cost of $2.45 million. Its existing machine was purchased five years ago at a price of $1.8 million; six months ago, Hillsong spent $55,000 to keep it operational. The existing sewing machine can be sold today for $245,090. The new sewing machine would require a one-time, $85,000 training cost. Operating costs would decrease by the following amounts for years 1 to 7: Year 1 $389,800 2   399,800...
Hillsong Inc. manufactures snowsuits. Hillsong is considering purchasing a new sewing machine at a cost of...
Hillsong Inc. manufactures snowsuits. Hillsong is considering purchasing a new sewing machine at a cost of $2.45 million. Its existing machine was purchased five years ago at a price of $1.8 million; six months ago, Hillsong spent $55,000 to keep it operational. The existing sewing machine can be sold today for $240,164. The new sewing machine would require a one-time, $85,000 training cost. Operating costs would decrease by the following amounts for years 1 to 7: Year 1 $390,800 2...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT