A machine costs $460,000, has a $36,000 salvage value, is expected to last eight years, and...

Question

Expert Solution

New equipment costs $675,000 and is expected to last for five years with no salvage value....

4) Machine A costs $35,000, lasts 3 years and has a salvage value of $7,500. Machine...

A machine costs Rs. 10,000 with useful life of 5 years. It has a salvage value...

Johnson Company purchases a $36,000 truck that is estimated to last nine years, with no salvage...

A new machine costs $42,000 and has a $2000 salvage value at the end of its...

A widget machine your company has just purchased for $120,000 has an expected salvage value of...

A man bought a machine for P66,463 six years ago. It has a salvage value of...

An asset costs $10,000 and has a depreciable life of 10 years and a salvage value...

A machine costs Php 332,631 with a salvage value of Php 44,647 at the end of...

We are evaluating a project that costs $500,000, has an eight-year life, and has no salvage...

In: Accounting

A machine costs $460,000, has a $36,000 salvage value, is expected to last eight years, and will generate an after-tax income of $100,000 per year after straight-line depreciation.

Assume the company requires a 10% rate of return on its investments. Compute the net present value of each potential investment. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

A new operating system for an existing machine is expected to cost $650,000 and have a useful life of six years. The system yields an incremental after-tax income of $190,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $50,000.

A machine costs $460,000, has a $36,000 salvage value, is expected to last eight years, and will generate an after-tax income of $100,000 per year after straight-line depreciation.

Answer 1)

Calculation of Net Present value

Net Present value = Present value of annual cash inflow + Present value of salvage value - Initial cash outflow

= $ 1,263,025.40 + $ 28,223.50 - $ 650,000

= $ 641,248.90 or $ 641,249 (rounded off)

Therefore the Net Present value of the investment is $ 641,249

Working Note:

Calculation of Annual depreciation

Annual depreciation = (Original cost – salvage value)/ number of years of useful life of the asset

= ($ 650,000 - $ 50,000)/6 years

= $ 100,000

Calculation of Annual Cash Inflow:

Annual cash inflow = Annual after tax income + Annual depreciation

= $ 190,000 + $ 100,000

= $ 290,000

Calculation of present value of Annual Cash Inflow:

Present value of annual cash inflow = Annual cash inflow X Present value annuity factory at 10% for 6 years

= $ 290,000 X 4.35526

= $ 1,263,025.40

Calculation of present value of Salvage value:

Present value of salvage value = Salvage value X Present value factor at 10% at the end of 6th year

= $ 50,000 X 0.56447

= $ 28,223.50

Answer 2)

Calculation of Net Present value

Net Present value = Present value of annual cash inflow + Present value of salvage value - Initial cash outflow

= $ 816,244.29 + $ 16,794.36 - $ 460,000

= $ 373,038.65 or $ 373,039 (rounded off)

Therefore the Net Present value of the investment is $ 373,039

Working Note:

Calculation of Annual depreciation

Annual depreciation = (Original cost – salvage value)/ number of years of useful life of the asset

= ($ 460,000 - $ 36,000)/8 years

= $ 53,000

Calculation of Annual Cash Inflow:

Annual cash inflow = Annual after tax income + Annual depreciation

= $ 100,000 + $ 53,000

= $ 153,000

Calculation of present value of Annual Cash Inflow:

Present value of annual cash inflow = Annual cash inflow X Present value annuity factory at 10% for 8 years

= $ 153,000 X 5.33493

= $ 816,244.29

Calculation of present value of Salvage value:

Present value of salvage value = Salvage value X Present value factor at 10% at the end of 8th year

= $ 36,000 X 0.46651

= $ 16,794.36

ekkarill92 answered 1 year ago

New equipment costs $675,000 and is expected to last for five years with no salvage value. During this time, the company will use a 30% CCA rate. The new equipment will save $120,000 annually before taxes. If the company's required return is 12% and the tax rate is 35%, what is the present value of the equipment's CCA tax shield?Please show all the calculations by which you came up with the final answer. $189,710 $159,710 $169,710 $199,710 $179,710

4) Machine A costs $35,000, lasts 3 years and has a salvage value of $7,500. Machine B costs $25,000, lasts 2 years and has a salvage value of $3,500. The machines can be purchased at the same price with the same salvage value in the future, and are needed for a 6 year project. Which machine would you purchase and why? Provide justification using an Annualized Equivalent Cost analysis. Interest is 10% annual rate, compounded annually. Answer______________________________________

A machine costs Rs. 10,000 with useful life of 5 years. It has a salvage value of Rs. 2,000 at the end of its useful life. The machine is expected to generate the following cash flows; Year Cash Flow (PKR) 1 5,000 2 6,000 3 8,000 4 6,500 5 4,000 Calculate Accounting Rate of Return? Tax is applied at 30% per annum. Why Accounting Rate of Return is not among the favorite methodology to evaluate a project? In what circumstances...

Johnson Company purchases a $36,000 truck that is estimated to last nine years, with no salvage value. If Johnson uses the straight line method of depreciation, what will the accumulated depreciation amount to after two years of use? a. $0 b. $8,000 c. $9,000 d. $36,000

A new machine costs $42,000 and has a $2000 salvage value at the end of its 8-year useful life. Determine the straight-line (SL), and the double declining balance (DDB) depreciation schedules for the machine.

A widget machine your company has just purchased for $120,000 has an expected salvage value of $25,000. It has an expected life of 8 years. Develop a sum-of-the-years-digits depreciation schedule with half year convention. Please show book value at the beginning of each year in your depreciation schedule. Remember to show all of your work.

A man bought a machine for P66,463 six years ago. It has a salvage value of P11,373 four years from now. He sold it now for P12,930. What is the sunk cost or the value of the machine that the man lost if the depreciation method used is a Straight-Line method?

An asset costs $10,000 and has a depreciable life of 10 years and a salvage value of $3,000. Determine the book (asset) value at the end of the 9th year using each of the following methods of depreciation (a) double-declining-balance method (b) textbook-declining-balance method (Matheson formula), and (c) sum-of-years’ digits method.

A machine costs Php 332,631 with a salvage value of Php 44,647 at the end of its life of 11 years. If money is worth 5% annually, use Sinking Fund Method and determine the depreciation at the 2th year. MANUAL SOLUTION PLEASE

Select Chart

Present Value

Annual cash flow

Residual value

Net present value

We are evaluating a project that costs $500,000, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 50,000 units per year. Price per unit is $40, variable cost per unit is $25, and fixed costs are $600,000 per year. The tax rate is 22 percent, and we require a return of 12 percent on this project. Suppose the projections given for price, quantity,...