Question
In: Finance
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 be recovered after 3 years. The machine would have no effect on revenues, however the machine is expected to save the company $62,000 per year in before-tax operating costs.
The company’s tax rate is 30%. The project has a required rate of return of 12% per year compounded annually.
What is the NPV of the project?
(Note: To get full marks you must show your work. If you are using the table approach you must show the numbers for year 0 to year 3. In addition you must show the calculation or function you used to arrive at the final answer. If you are using the formula, recipe or list approach you must show each step in the approach.)
Solutions
Expert Solution
Use a spreadsheet for the ease in computations. Enter the values and the formulas in the spreadsheet as shown in the image below.
The obtained result is provided below.
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
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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...
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 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
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
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depreciation, interest and taxes (EBDIT) are expected to be as
follows with...
Rex Berhad is considering buying a new production machine. The proposed machine would cost the company...
Rex Berhad is considering buying a new production machine. The
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installation and modification cost of RM1,500 to be installed
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A company is considering a new inventory system that will cost $120,000. The system is expected...
A company is considering a new inventory system that will cost
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over the next four years in the amounts of $35,000 in year 1,
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firm’s required rate of return is 9%. What is the payback period of
this project?
1.95 years
2.46 years
2.99 years
3.10 years
--------- What is the net present value (NPV) of...
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
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Question options:
0.63
8.25
1.36
1.01
Company XYZ is considering investing in a new machine that will cost $15,000. The machine will...
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$50,000 per year. The machine will have a life of 3 years. The
operating expenses of XYZ are projected to be 70% of total sales.
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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
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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%....
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