Question
In: Finance
YEAR 0 YEAR 1 YEAR 2 YEAR 3 MACRS DEPRECIATION RATE 33.33% 44.45% 14.81% 7.41% A...
| YEAR 0 | YEAR 1 | YEAR 2 | YEAR 3 | |
| MACRS | ||||
| DEPRECIATION RATE | 33.33% | 44.45% | 14.81% | 7.41% |
A fast-food company invests $2.2 million to buy machines for making Slurpees. These can be depreciated using the MACRS schedule shown above. If the cost of capital is 10%, what is the increase in the net present value (NPV) of the product gained by using MACRS depreciation over straight-line depreciation for three years? A) $28,559 B) $47,599 C) $76,158 D) $190,321
Please help me, I'm not able to use excel in my class so if I could get a step by step that would help me immensely
Solutions
Expert Solution
| Under straight line method depreciation for each year is same | |||||||
| Depreciation under straight line | $2.2 million/3 | ||||||
| Depreciation under straight line | $0.73 | ||||||
| Calculation of depreciation under MACRS | |||||||
| Year 0 | $0.73 | 2.2*33.33% | |||||
| Year 1 | $0.98 | 2.2*44.45% | |||||
| Year 2 | $0.33 | 2.2*14.81% | |||||
| Year 3 | $0.16 | 2.2*7.41% | |||||
| Calculation of incremental depreciation by using MACRS over straight line depreciation | |||||||
| Year | MACRS | Straight line | Incremental | Discount factor @ 10% | Present value | ||
| 0 | $0.73 | $0.00 | $0.73 | 1.00000 | 1/(1.1^0) | $0.7332600 | |
| 1 | $0.98 | $0.73 | $0.24 | 0.90909 | 1/(1.1^1) | $0.2223333 | |
| 2 | $0.33 | $0.73 | -$0.41 | 0.82645 | 1/(1.1^2) | -$0.3367879 | |
| 3 | $0.16 | $0.73 | -$0.57 | 0.75131 | 1/(1.1^3) | -$0.4284848 | |
| Net present value | $0.1903206 | ||||||
| Net present value (Total) | $190,321 | ||||||
| Thus, net present value of product gained is $190,321 | |||||||
jeff jeffy answered 6 months agoRelated Solutions
MACRS Depreciation Allowances Property Class Year 3-Year 5-Year 7-Year 1 33.33% 20.00% 14.29% 2 44.45 32.00 ...
MACRS Depreciation Allowances
Property Class
Year
3-Year
5-Year
7-Year
1
33.33%
20.00%
14.29%
2
44.45
32.00
24.49
3
14.81
19.20
17.49
4
7.41
11.52
12.49
5
11.52
8.93
6
5.76
8.92
7
8.93
8
4.46
Use the following information to answer the next three
questions:
Some new equipment under consideration will cost $2,600,000 and
will be used for 4 years. Net working capital will experience a one
time increase of $559,000 if the equipment is purchased. The
equipment is expected...
MACRS Depreciation Allowances Property Class Year 3-Year 5-Year 7-Year 1 33.33% 20.00% 14.29% 2 44.45 32.00 ...
MACRS Depreciation Allowances
Property Class
Year
3-Year
5-Year
7-Year
1
33.33%
20.00%
14.29%
2
44.45
32.00
24.49
3
14.81
19.20
17.49
4
7.41
11.52
12.49
5
11.52
8.93
6
5.76
8.92
7
8.93
8
4.46
Use the following information to answer the next three
questions:
Some new equipment under consideration will cost $2,600,000 and
will be used for 4 years. Net working capital will experience a one
time increase of $559,000 if the equipment is purchased. The
equipment is expected...
MACRS Fixed Annual Expense Percentages by Recovery Class Year 3-Year 5-Year 7-Year 10-Year 1 33.33% 20.00%...
MACRS Fixed Annual Expense Percentages by Recovery
Class
Year
3-Year
5-Year
7-Year
10-Year
1
33.33%
20.00%
14.29%
10.00%
2
44.45%
32.00%
24.49%
18.00%
3
14.81%
19.20%
17.49%
14.40%
4
7.41%
11.52%
12.49%
11.52%
5
11.52%
8.93%
9.22%
6
5.76%
8.93%
7.37%
7
8.93%
6.55%
8
4.45%
6.55%
9
6.55%
10
6.55%
11
3.28%
NPV. Mathews Mining Company is looking at a
project that has the following forecasted sales: first-year
sales are 7,000 units, and sales will grow...
MACRS Fixed Annual Expense Percentages by Recovery Class Year 3-Year 5-Year 7-Year 10-Year 1 33.33% 20.00%...
MACRS Fixed Annual Expense Percentages by Recovery
Class
Year
3-Year
5-Year
7-Year
10-Year
1
33.33%
20.00%
14.29%
10.00%
2
44.45%
32.00%
24.49%
18.00%
3
14.81%
19.20%
17.49%
14.40%
4
7.41%
11.52%
12.49%
11.52%
5
11.52%
8.93%
9.22%
6
5.76%
8.93%
7.37%
7
8.93%
6.55%
8
4.45%
6.55%
9
6.55%
10
6.55%
11
3.28%
Project cash flow and NPV. The managers of
Classic Autos Incorporated plan to manufacture classic
Thunderbirds (1957 replicas). The necessary foundry equipment will
cost a...
11. Please solve in Excel and round to 3 decimal places: YEAR DEPRECIATION FACTOR 1 33.33%...
11. Please solve in Excel and round to 3 decimal
places:
YEAR
DEPRECIATION FACTOR
1
33.33%
2
44.45%
3
14.81%
4
7.41%
The original cost of the new production line is estimated at $3
million and falls into 3 year MACRS. This is a 3 year project.
Expected annual sales are $2,950,000 per year, with associated
annual costs of $1,250,000. The project requires a net working
capital of $375,000. They can usually sell their production lines
for 40% of their...
7. Please solve in Excel and round to 3 decimal places: YEAR DEPRECIATION FACTOR 1 33.33%...
7. Please solve in Excel and round to 3 decimal
places:
YEAR
DEPRECIATION FACTOR
1
33.33%
2
44.45%
3
14.81%
4
7.41%
The original cost of the new production line is estimated at $3
million and falls into 3 year MACRS. This is a 3 year project.
Expected annual sales are $2,950,000 per year, with associated
annual costs of $1,250,000. The project requires a net working
capital of $375,000. They can usually sell their production lines
for 40% of their...
An investment of $600,000 is made in equipment that qualifies as 3-year equipment for MACRS-GDS depreciation....
An investment of $600,000 is made in equipment that qualifies as
3-year equipment for MACRS-GDS depreciation. The before-tax cash
flows, measured in constant dollars, for the investment consist of
a uniform annual series of $200,000 plus a $200,000 salvage value
at the end of the 5-year planning horizon. A 40% tax rate and 3%
inflation rate apply. The real ATMARR is 10%
a. Determine the after-tax cash flows, in constant dollars, for
each year.
b. Determine the present worth for...
Determine the rate of return for this project. Year 0 1 2 3 4 5 Cash...
Determine the rate of return for this project.
Year
0
1
2
3
4
5
Cash flow
-$12,300
$4000
$4000
$3000
$3000
$3000
14.21%
12.75%
13.11%
13.85%
Two alternatives with the cash flow described below. MACRS depreciation and 5years MACRS Incremental tax rate=24%...
Two alternatives with the cash flow described below. MACRS
depreciation and 5years MACRS
Incremental tax rate=24%
After tax MARR= 10%
A
B
Initial cost
11,000
33,000
Uniform Annual Benefits
3,000
9,000
Salvage Value
2,000
5,000
Life(years)
5
5
Find the alternative to choiisw, after cinsidering taxes
YEAR MACRS 3-YEAR 1 33% 2 45% 3 15% 4 7% Troll Inc is considering replacing...
YEAR MACRS 3-YEAR
1
33%
2
45%
3
15%
4
7%
Troll Inc is considering replacing an old, relatively
inefficient Troll onjection-mold machine that was purchased three
years ago with a new, more effiecent model. The cost of the old
machine has $7500 and had an expected MACRS life of three years. If
they sell the old machine now they would receive $1000. However, at
the end of five years the old machine is worthless. The cost of the
new...
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