(2) Consider an asset that is 3 years old and has a remaining physical life of...

(2) Consider an asset that is 3 years old and has a remaining physical life of 2 years with the following projected cash flows:

EOY Revenue Operating Cost Salvage Value

4 $1,200 $800 $300

5 $1,100 $900 $0

Assume that the asset may currently be sold for $600 and that the before tax MARR is 10%. What is the PW of keeping the asset for TWO more years? Answer is -71.08 but I don't know how to get to it

Expert Solution


	we have to compute the NPV of the keeping machine for 2 year

		i	ii	iii=i-ii	iv	v=iii*iv
	Year	Revenue	Cost	Net cash flow	PVIF @ 10%	Present value
	1	1200	800	400	0.9091	363.64
	2	1100	900	200	0.8265	165.29
A		Present value of cash flow =		528.92

B		Present value of cash outlow flow =		600

C	NPV =	PV of cash inflow - PV of cash outflow	(71.08)

		Answer =				(71.08)

ekkarill92 answered 2 years ago

Question: An asset has a useful life of 3 years. cost of the asset is $2000....

Question: An asset has a useful life of 3 years. cost of the asset is $2000. Residual value is $500. the asset can be used for a total of 1500 hours. it is used for 650 hours in the first year of operations and for 600 hours in the second year. Depreciation expense for the three years will be as follows: Calculate annual depreciation for the first and second year of the operations using (1) straight-line method (2) Units of...

Consider a project with a life of 3 years with the following information: initial fixed asset...

Consider a project with a life of 3 years with the following information: initial fixed asset investment = $350,000; straight-line depreciation to zero over the 3-year life; zero salvage value; price = $34; variable costs = $12; fixed costs = $133,000; quantity sold = 59,850 units; tax rate = 22 percent. How sensitive is OCF to changes in quantity sold?

Consider a bond that pays $50 semi-annual interest and has a remaining life of 10 years....

Consider a bond that pays $50 semi-annual interest and has a remaining life of 10 years. The bond currently sells for $987 and has a yield to maturity of 10.20%. a. What is the bond’s duration? b. What is its modified duration? c. What is its convexity? d. What percentage change in bond price would be expected for one percent decrease in interest rate?

You are also considering another project that has a physical life of 3 years; that is,...

You are also considering another project that has a physical life of 3 years; that is, the machinery will be totally worn out after 3 years. However, if the project were terminated prior to the end of 3 years, the machinery would have a positive salvage value. Here are the project’s estimated cash flows: (Please show work and Excel formulas for calculations) Year Initial Investment and Operating Cash Flows End-of-YearNet Salvage Value 0 -5,000 $5000 1 2100 3100 2 2,000...

The Ajax Corporation has an overhead crane that has an estimated remaining life of 10 years....

The Ajax Corporation has an overhead crane that has an estimated remaining life of 10 years. The crane can be sold now for $8,000. If the crane is kept in service, it must be overhauled immediately at a cost of $4,000. After the crane is overhauled, O&M costs will be $3,000 in the first year and will escalate at 5%/year thereafter. The overhauled crane will have zero MV at the end of the 10-year study period. A new crane will...

Consider the following lifecycle model of consumption. Minjoonhas 60 years of life remaining. He plans...

Consider the following lifecycle model of consumption. Minjoon has 60 years of life remaining. He plans to work 30 more years from now and then retire. He earns $1,000 per year while he is working and has $200 per year pension income after retirement. He currently has $6,000 of savings. He wants equal consumption every year. The interest rate is zero.Q4. What will be Minjoon’s annual consumption?a) $200. b) $600. c) $700. d) $1,000.Q5. Which of the following statements regarding...

Consider a project with a life of 4 years with the following information: initial fixed asset...

Consider a project with a life of 4 years with the following information: initial fixed asset investment = $380,000; straight-line depreciation to zero over the 4-year life; zero salvage value; price = $28; variable costs = $15; fixed costs = $121,600; quantity sold = 54,720 units; tax rate = 25 percent. How sensitive is OCF to changes in quantity sold?

Consider an asset with the cost basis of $500,000, useful life of 5 years and salvage...

Consider an asset with the cost basis of $500,000, useful life of 5 years and salvage value of 10,000 at the end of its useful life. This asset generates yearly revenue of $275,000 and its operating cost is $55,000 per year. Average inflation rate is estimated to be 4% over the next 5 years. Calculate tax saving in year 2 due to depreciation; if the double declining method is used for depreciation (tax rate is 30%). (Report your answer in...

Consider a bond that pays $50 semi-annual interest and has a remaining life of 10...

Consider a bond that pays $50 semi-annual interest and has a remaining life of 10 years. The bond currently sells for $987 and has a yield to maturity of 10.20%. What is the bond’s duration? What is its modified duration? What is its convexity? What percentage change in bond price would be expected for one percent decrease in interest rate?

1. XYZ Manufacturing Corporation currently has production equipment that has 4 years of remaining life. The...

1. XYZ Manufacturing Corporation currently has production equipment that has 4 years of remaining life. The equipment was purchased a year ago at a cost of $10,000. The annual depreciation for this machine is $1,800 and its expected salvage value is $1,000. The equipment can be sold today for $8,000. The company has been considering the purchase of a new machine that will replace the existing one. The new equipment costs $15,000 and would increase sales (through increased production) by...

Question