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In: Finance
Nuke-A-Bird, Inc. sells frozen chicken meals. The company needs to purchase some new freezers for storing...
Nuke-A-Bird, Inc. sells frozen chicken meals. The company needs to purchase some new freezers for storing inventory. If the freezers are purchased, they will replace old freezers purchased 10 years ago for $105,000, and these are being depreciated on a straight-line basis to a zero book value (15-year depreciable life). The old freezers can be sold for $60,000 today, and $2,000 in 5 years. The new freezers will cost $200,000 installed and will be depreciated on a straight-line basis to a book value of 0. The new freezers will have a salvage value of $25,000 at the end of the 5th year. The firm expects to increase its pre-tax revenues by $50,000 per year if the new freezers are purchased, but cash expenses will also increase by $6,000 because the new freezers require greater electrical expense. If the firm's cost of capital is 10 percent and its tax rate on income and capital gains is 34%, what is the NPV of the new freezers?
a) What is the annual difference in the FCFF from the new project?
b) What is the NPV of the replacement decision?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
Nuke-A-Bird, Inc. sells frozen chicken meals. The company needs to purchase some new freezers for storing...
Nuke-A-Bird, Inc. sells frozen chicken meals. The company needs
to purchase some new freezers for storing inventory. If the
freezers are purchased, they will replace old freezers purchased 10
years ago for $105,000, and these are being depreciated on a
straight line basis to a zero book value (15-year depreciable
life). The old freezers can be sold for $60,000 today, and $2,000
in 5 years. The new freezers will cost $200,000 installed and will
be depreciated on a straight-line basis...
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LOADING...(Click the icon to view the data.)
Requirements 1. Compute the product cost per meal produced under
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