Question

In: Finance

ABC is a new company established in Victoria. The new equipment XYZ is considering costs $765,000...

ABC is a new company established in Victoria. The new equipment XYZ is considering costs $765,000 and is expected to last for 5 years. The equipment can be sold at $137,000 at the end of the project. The initial net working capital investment is 52,000 and will remain constant throughout the period and 100% will be recovered at the end of the final year. The new equipment will save $120,000 annually before taxes. If the company's required rate of return is 15% and the PVCCATs value is $123,765 determine the NPV value of the project. Assume a tax rate of 30%. The CCA rate is 35%.

Solutions

Expert Solution


Related Solutions

ABC Company is considering the acquisition of a new piece of equipment to replace an old,...
ABC Company is considering the acquisition of a new piece of equipment to replace an old, outdated machine currently used in its business operations. The new equipment would cost $135,000 and is expected to last 9 years. The new equipment would require a repair of $25,000 in year four and another repair costing $80,000 in year eight. Purchasing this new equipment would require an immediate investment of $30,000 in working capital which would be released for investment elsewhere at the...
XYZ company is considering a new machine that costs $250,000 and would reduce pre-tax manufacturing costs...
XYZ company is considering a new machine that costs $250,000 and would reduce pre-tax manufacturing costs by $90,000 annually. XYZ would use the 3-year MACRS method to depreciate the machine, and management thinks the machine would have a value of $23,000 at the end of its 5-year operating life. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The net operating Working capital would increase by $25,000 initially, but it would be recovered at the end of the project's...
XYZ company is considering a new machine that costs $250,000 and would reduce pre-tax manufacturing costs...
XYZ company is considering a new machine that costs $250,000 and would reduce pre-tax manufacturing costs by $90,000 annually. XYZ would use the 3-year MACRS method to depreciate the machine, and management thinks the machine would have a value of $23,000 at the end of its 5-year operating life. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The net operating Working capital would increase by $25,000 initially, but it would be recovered at the end of the project's...
XYZ company is considering a new machine that costs $300,000 and would reduce pre-tax manufacturing costs...
XYZ company is considering a new machine that costs $300,000 and would reduce pre-tax manufacturing costs by $108,000 annually. XYZ would use the 3-year MACRS method to depreciate the machine, and management thinks the machine would have a value of $23,000 at the end of its 5-year operating life. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The net operating working capital (NOWC) would increase by $25,000 initially, but it would be recovered at the end of the...
XYZ company is considering a new machine that costs $250,000 and would reduce pre-tax manufacturing costs...
XYZ company is considering a new machine that costs $250,000 and would reduce pre-tax manufacturing costs by $90,000 annually. XYZ would use the 3-year MACRS method to depreciate the machine, and management thinks the machine would have a value of $23,000 at the end of its 5-year operating life. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The net operating Working capital would increase by $25,000 initially, but it would be recovered at the end of the project's...
Two companies, ABC and XYZ, are considering entering into a swap. Company ABC can borrow at...
Two companies, ABC and XYZ, are considering entering into a swap. Company ABC can borrow at a fixed rate of 8.1% or, alternatively LIBOP + 1.3%. Company XYZ faces a fixed rate of 7.5% and a floating rate of LIBOR + 0.3%. a) Suppose that company ABC wants a floating rate loan, while company XYZ wants a fixed rate loan. Is there a basis for a swap? If so, set up the swap under the assumption that interest rate savings...
ABC Company sold equipment on October 1, 2018, to XYZ Company for £1,000,000. It agrees to...
ABC Company sold equipment on October 1, 2018, to XYZ Company for £1,000,000. It agrees to repurchase this equipment in July 2019, for a price of £1,100,000. The proper accounting treatment for this transaction based on Select one: a. relevance b. going concern c. comparability d. substance over form
The company "XYZ" is considering to make a new investment that costs 120,000 euros, has beneficial/useful...
The company "XYZ" is considering to make a new investment that costs 120,000 euros, has beneficial/useful life span 5 years and residual (salvage) value 20,000 euros. After the new investment, for the next five years annual sales will rise by 100,000 euros and annual costs will also rise by 30,000 euros. Moreover, the net working capital (NWC) will increase by 30,000 euros. In addition, the corporate tax rate is 50%. the capital cost factor is 10% and the company applies...
The Rustic Welt Company is considering launching a new product. The new equipment costs $9 million...
The Rustic Welt Company is considering launching a new product. The new equipment costs $9 million and falls under straight line depreciation. The depreciation rate will be 10% each year for the next 10 years. The sale price is $8 per welt. The variable costs is a welt to $4 per welt. However, as the following table shows, there is some uncertainty about both the future number of unit sold: Pessimistic Expected Optimistic Units sold 400,000 500,000 700,000 a. calculate...
Pausini Corporation is considering a new equipment for their factory in Milan. The equipment costs   ...
Pausini Corporation is considering a new equipment for their factory in Milan. The equipment costs    $500,000 today and it will be depreciated on a straight-line basis over five years. In          addition, the      company’s inventory will increase by $81,000 and accounts payable will rise by $29,000. All other           operating working capital components will stay the same. The change in net working capital will be recovered at the end of third year at which time the company sells...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT