Question
In: Finance
A company is evaluating the purchase of Machine A. The new machine would cost $120,000 and...
A company is evaluating the purchase of Machine A. The new machine would cost $120,000 and would be depreciated for tax purposes using the straight-line method over an estimated ten-year life to its expected salvage value of $20,000. The new machine would require an addition of $30,000 to working capital. In each year of Machine A’s life, the company would reduce its pre-tax costs by $40,000. The company has a 12% cost of capital and is in the 35% marginal tax bracket.
a. Identify the incremental cash flows from investing in Machine A.
b. Calculate the investment’s net present value (NPV).
c. Calculate the investment’s internal rate of return (IRR).
Solutions
jeff jeffy answered 2 years agoRelated Solutions
A company is evaluating the purchase of Machine A. The new machine would cost $120,000 and...
A company is evaluating the purchase of Machine A. The new
machine would cost $120,000 and would be depreciated for tax
purposes using the straight-line method over an estimated ten-year
life to its expected salvage value of $20,000. The new machine
would require an addition of $30,000 to working capital. In each
year of Machine A’s life, the company would reduce its pre-tax
costs by $40,000. The company has a 12% cost of capital and is in
the 35% marginal...
A company is evaluating the purchase of Machine A. The new machine would cost $120,000 and...
A company is evaluating the purchase of Machine A. The new
machine would cost $120,000 and would be depreciated for tax
purposes using the straight-line method over an estimated ten-year
life to its expected salvage value of $20,000. The new machine
would require an addition of $30,000 to working capital. In each
year of Machine A’s life, the company would reduce its pre-tax
costs by $40,000. The company has a 12% cost of capital and is in
the 35% marginal...
Tetley Company is considering acquiring a new machine. The machine would cost $120,000 and it would...
Tetley Company is considering acquiring a new machine. The
machine would cost $120,000 and it would cost another $30,000 to
modify the machine and get it installed and ready for
operations.
The machine falls into class 8 with a 20% CCA rate and it would
be sold after 3 years for $50,000. The machine would require an
immediate increase of $8,000 in operating net working capital. The
balance of operating net working capital would remain unchanged
during the project and...
Marion Dexter Company is evaluating a proposal to purchase a new machine that would cost $100,000...
Marion Dexter Company is evaluating a proposal to purchase a new
machine that would cost $100,000 and have a salvage value of
$10,000 in four years. It would provide annual operating cash
savings of $10,000, as follows:
Old Machine New Machine
Salaries $
40,000
$ 36,000
Supplies
7,000
5,000
Maintenance 9,000
5,000
Total
$56,000
$46,000
If the new machine is purchased, the old machine will be sold
for its current salvage value of $20,000. If the new machine is...
A firm is considering the purchase of a new machine at a price of $120,000. The machine...
A firm is considering the purchase of a new machine at a price
of $120,000. The machine falls into the three-year MACRS
class. If the new machine is acquired, the firm's investment in net
working capital will immediately increase by $15,000 and then
remain at that level throughout the life of the project. At the end
of 3 years, the new machine can be sold for $5,000. Earnings before
depreciation, interest and taxes (EBDIT) are expected to be as
follows with...
A company is considering the purchase of a new machine. The machine will cost $14,000, will...
A company is considering the purchase of a new machine. The
machine will cost $14,000, will result in an annual savings of
$1750 with a salvage value of $500 at the end of 12 years. For a
MARR of 7%, what is the benefit to cost ratio?
Question options:
0.63
8.25
1.36
1.01
Simon Machine Tools Company is evaluating purchase of a new set of specialized machine tools, with a...
Simon Machine Tools Company is evaluating purchase of
a new set of specialized machine tools, with a MACRS class life of
3 years. The following information is available.
Without projects afforded by the tools, ABC expects taxable
income to be $350,000 for each of the next 3 years.
With projects afforded by the tools, ABC expects additional
taxable income of $80,000 for each of the next 3 years. The machine
tools will cost $50,000 to purchase, $20,000 per year to operate,...
Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost...
Caine Bottling Corporation is considering the purchase of a new
bottling machine. The machine would cost $228,168 and has an
estimated useful life of 8 years with zero salvage value.
Management estimates that the new bottling machine will provide net
annual cash flows of $33,500. Management also believes that the new
bottling machine will save the company money because it is expected
to be more reliable than other machines, and thus will reduce
downtime. Assume a discount rate of 5%....
Michener Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost...
Michener Bottling Corporation is considering the purchase of a
new bottling machine. The machine would cost $170,000 and has an
estimated useful life of eight years with zero salvage value.
Management estimates that the new bottling machine will provide net
annual cash flows of $31,000. Management also believes that the new
machine will save the company money because it is expected to be
more reliable than other machines, and thus will reduce downtime.
Assume a discount rate of 10%. Click...
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
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