3. A new machine will cost $600,000 including delivery and installation. The new unit has a...

3. A new machine will cost $600,000 including delivery and installation. The new unit has a CCA depreciation

rate of 25 percent. At the end of four years, it will be sold for $100,000. The net working capital requirement

required at the beginning of the rst four years are $50,000, $60,000, $70,000, and $60,000.

In the rst year, revenue will increase by $150,000 and operating costs will decrease by $30,000. The dierence

between them, R?C, will grow at 3 percent. The tax rate is 30 percent, and the discount rate is 14 percent.

(a) How will R ? C in the next four years aect the project's NPV?

(b) How will the PVCCATS and the proceeds from the sale at the end of year 4 aect the project's NPV?

(d) What is the free cash ow in year 1?

(e) What is the NPV of the project?

Solutions

Expert Solution

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

A new machine will cost $600,000 including delivery and installation. The new unit has a CCA...

A new machine will cost $600,000 including delivery and installation. The new unit has a CCA depreciation rate of 25 percent. At the end of four years, it will be sold for $100,000. The net working capital requirement required at the beginning of the first four years are $50,000, $60,000, $70,000, and $60,000. In the first year, revenue will increase by $150,000 and operating costs will decrease by $30,000. The difference between them, R−C, will grow at 3 percent. The...

Cheetah Copy purchased a new copy machine. The new machine cost $110,000 including installation. The company...

Cheetah Copy purchased a new copy machine. The new machine cost $110,000 including installation. The company estimates the equipment will have a residual value of $27,500. Cheetah Copy also estimates it will use the machine for four years or about 8,000 total hours. Actual use per year was as follows: Year Hours Used 1 2,000 2 1,600 3 2,000 4 3,200 1. Prepare a depreciation schedule for four years using the straight-line method. (Do not round your intermediate calculations.) 2....

Cheetah Copy purchased a new copy machine. The new machine cost $136,000 including installation. The company...

Cheetah Copy purchased a new copy machine. The new machine cost $136,000 including installation. The company estimates the equipment will have a residual value of $34,000. Cheetah Copy also estimates it will use the machine for four years or about 8,000 total hours. Actual use per year was as follows: Year Hours Used 1 2,900 2 1,900 3 1,900 4 3,500 2. Prepare a depreciation schedule for four years using the double-declining-balance method. CHEETAH COPY Depreciation Schedule—Double-Declining-Balance End of Year...

Cheetah Copy purchased a new copy machine. The new machine cost $114,000 including installation. The company...

Cheetah Copy purchased a new copy machine. The new machine cost $114,000 including installation. The company estimates the equipment will have a residual value of $28,500. Cheetah Copy also estimates it will use the machine for four years or about 8,000 total hours. Actual use per year was as follows: Year Hours Used 1 2,000 2 2,000 3 2,000 4 3,200 2. Prepare a depreciation schedule for four years using the double-declining-balance method. (Hint: The asset will be depreciated in...

Cheetah Copy purchased a new copy machine. The new machine cost $114,000 including installation. The company...

Cheetah Copy purchased a new copy machine. The new machine cost $114,000 including installation. The company estimates the equipment will have a residual value of $28,500. Cheetah Copy also estimates it will use the machine for four years or about 8,000 total hours. Actual use per year was as follows: Year Hours Used 1 2,000 2 2,000 3 2,000 4 3,200 3. Prepare a depreciation schedule for four years using the activity-based method. (Round your "Depreciation Rate" to 3 decimal...

Cheetah Copy purchased a new copy machine. The new machine cost $130,000 including installation. The company...

Cheetah Copy purchased a new copy machine. The new machine cost $130,000 including installation. The company estimates the equipment will have a residual value of $32,500. Cheetah Copy also estimates it will use the machine for four years or about 8,000 total hours. Actual use per year was as follows: Year Hours Used 1 2,000 2 2,000 3 2,000 4 3,200 1. Prepare a depreciation schedule for four years using the straight-line method. 2. Prepare a depreciation schedule for four...

If you have an asset worth 600,000 and an installation cost of 25,000 and it has...

If you have an asset worth 600,000 and an installation cost of 25,000 and it has been forecast that at the end of five years you will sell the asset for 18,000: A) does the value of the asset include the installation for depreciation purposes? B) using the straight line method what is the correct amount of annual depreciation that should be recorded in the operational cashflow? Is the salvage cost deducted first? C) after the five years is there...

You are considering a new project that requires $300,000 investment in a machine, including installation and...

You are considering a new project that requires $300,000 investment in a machine, including installation and shipping cost. The life of the machine is three years, and it depreciates via 3-year MACRS methods (33.33%, 44.45%, 14.81%, and 7.41%). If you operate this project, the annual sales of the firm increases by $250,000 a year, and the annual operating expense increased by $100,000. The firm has a marginal tax rate of 34%. In order to start the project, the firm has...

Company purchases a new punch press at a cost of $265,000. Delivery and installation cost $46,000....

Company purchases a new punch press at a cost of $265,000. Delivery and installation cost $46,000. The machine has a useful life of 12-years, but will depreciate using MACRS over a seven year property class, 1. What is the cost basis of the machine 2. What will be the depreciation allowance each year over the seven years 3. If we sell the machine at the end of five years for $70,000, what will be the gain/loss tax assuming a 40%...

A purchased machine cost $320,000 with delivery and installation charges amounting to $30,000. The declared salvage...

A purchased machine cost $320,000 with delivery and installation charges amounting to $30,000. The declared salvage value was $50,000. Early in Year 3, the company changed its product mix and found that it no longer needed the machine. One of its com- petitors agreed to buy the machine for $180,000. Determine the loss, gain, or recapture of MACRS depreciation on the sale. The ADR is 12 years for this machine.

Subjects