Question
In: Finance
Milton Industries wants to purchase new equipment that has a quoted price of $1,000,000. Milton estimates...
- Milton Industries wants to purchase new equipment that has a quoted price of $1,000,000. Milton estimates an additional cost of $95,000 will be needed today to have the equipment modified, shipped, and installed. The purchase of this additional equipment will require Milton to invest an estimated $65,000 in net working capital upfront, and this investment should be recovered when Milton sells the equipment. If purchased, the equipment will be employed for a total of five years, and then sold for an estimated $680,000. The equipment will be depreciated straight-line on a five-year schedule. During each of the years that the equipment is in service, it is expected to boost Milton’s sales revenue by $278,000 though annual operating costs (other than depreciation) are also expected to be higher, to the extent of $74,000. Milton faces a marginal tax rate of 25%, and its cost of capital is 7.00%. The NPV of this project will be zero if Milton’s cost of capital were:
|
9.58% |
||
|
8.62% |
||
|
9.22% |
||
|
10.00% |
||
|
10.97% |
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Milton Industries wants to purchase new equipment that has a quoted price of $1,000,000. Milton estimates...
Milton Industries wants to purchase new equipment that has a
quoted price of $1,000,000. Milton estimates an additional cost of
$95,000 will be needed today to have the equipment modified,
shipped, and installed. The purchase of this additional equipment
will require Milton to invest an estimated $65,000 in net working
capital upfront, and this investment should be recovered when
Milton sells the equipment. If purchased, the equipment will be
employed for a total of five years, and then sold for...
Milton Industries wants to purchase new equipment that has a quoted price of $1,000,000. Milton estimates...
Milton Industries wants to purchase new equipment that has a
quoted price of $1,000,000. Milton estimates an additional cost of
$85,000 will be needed today to have the equipment modified,
shipped, and installed. The purchase of this additional equipment
will require Milton to invest an estimated $55,000 in net working
capital upfront, and this investment should be recovered when
Milton sells the equipment. If purchased, the equipment will be
employed for a total of five years, and then sold for...
Milton Industries wants to purchase new equipment that has a quoted price of $1,000,000. Milton estimates...
Milton Industries wants to purchase new equipment that has a
quoted price of $1,000,000. Milton estimates an additional cost of
$95,000 will be needed today to have the equipment modified,
shipped, and installed. The purchase of this additional equipment
will require Milton to invest an estimated $65,000 in net working
capital upfront, and this investment should be recovered when
Milton sells the equipment. If purchased, the equipment will be
employed for a total of five years, and then sold for...
Milton Industries wants to purchase new equipment that has a quoted price of $1,000,000. Milton estimates...
Milton Industries wants to purchase new equipment that has a
quoted price of $1,000,000. Milton estimates an additional cost of
$95,000 will be needed today to have the equipment modified,
shipped, and installed. The purchase of this additional equipment
will require Milton to invest an estimated $65,000 in net working
capital upfront, and this investment should be recovered when
Milton sells the equipment. If purchased, the equipment will be
employed for a total of five years, and then sold for...
Harriman Manufacturing Company is evaluating the purchase of a new piece of equipment. The quoted price...
Harriman Manufacturing Company is evaluating the
purchase of a new piece of equipment. The quoted price is $50,000,
and it would cost Harriman another $ 10,000 for related capital
costs such as transportation and equipment modification for special
use. The total investment would fall into MACRS three year class
with depreciation rates being applied to the full capitalized costs
not excluding salvage at 33%, 45%, 15% and 7% in years 1-4,
respectively. Harriman expects that the equipment would be sold...
Harriman Manufacturing Company is evaluating the purchase of a new piece of equipment. The quoted price...
Harriman Manufacturing Company is evaluating the purchase of a
new piece of equipment. The quoted price is $50,000, and it would
cost Harriman another $ 10,000 for related capital costs such as
transportation and equipment modification for special use. The
total investment would fall into MACRS three year class with
depreciation rates being applied to the full capitalized costs not
excluding salvage at 33%, 45%, 15% and 7% in years 1-4,
respectively. Harriman expects that the equipment would be sold...
Harriman Manufacturing Co. is evaluating the purchase of a new forklift. The quoted price is $50,000,...
Harriman Manufacturing Co. is evaluating the purchase of a new
forklift. The quoted price is $50,000, and it would cost Harriman
another $10,000 for related capital costs such as transportation
and equipment modification for special use. The total investment
would fall into MACRS three year class with depreciation rates
being applied to the full capitalized costs, not deducting salvage,
at 33%, 45%, 15% and 7% in years 1-4, respectively. Harriman
expects that the equipment would be sold in the fourth...
Harriman Manufacturing Co. is evaluating the purchase of a new forklift. The quoted price is $50,000,...
Harriman Manufacturing Co. is evaluating the purchase of a new
forklift. The quoted price is $50,000, and it would cost Harriman
another $10,000 for related capital costs such as transportation
and equipment modification for special use. The total investment
would fall into MACRS three year class with depreciation rates
being applied to the full capitalized costs, not deducting salvage,
at 33%, 45%, 15% and 7% in years 1-4, respectively. Harriman
expects that the equipment would be sold in the fourth...
Monty Industries is considering the purchase of new equipment costing $1,300,000 to replace existing equipment that...
Monty Industries is considering the purchase of new equipment
costing $1,300,000 to replace existing equipment that will be sold
for $194,000. The new equipment is expected to have a $223,000
salvage value at the end of its 4-year life. During the period of
its use, the equipment will allow the company to produce and sell
an additional 32,600 units annually at a sales price of $27 per
unit. Those units will have a variable cost of $15 per unit. The...
Comey Products has decided to acquire some new equipment having a $270,000 purchase price. The equipment...
Comey Products has decided to acquire some new equipment having
a $270,000 purchase price. The equipment will last 4 years and is
in the MACRS 3-year class. (The depreciation rates for Year 1
through Year 4 are equal to 0.3333, 0.4445, 0.1481, and 0.0741.)
The firm can borrow at a 10% rate and pays a 25% federal-plus-state
tax rate. Comey is considering leasing the property but wishes to
know the cost of borrowing that it should use when comparing
purchasing...
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