Question

Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $6,600 and sell its old washer for $2,300. The new washer will last for 6 years and save $1,800 a year in expenses. The opportunity cost of capital is 19%, and the firm’s tax rate is 21%. a. If the firm uses straight-line depreciation over a 6-year life, what are the cash flows of the project in years 0 to 6? The new washer will have zero salvage value after 6 years, and the old washer is fully depreciated. (Negative amounts should be indicated by a minus sign.) b. What is project NPV? (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. What is NPV if the firm investment is entitled to immediate 100% bonus depreciation? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

a)Annual operating cash flow in year 0, Annual operating flow in years 1 to 6

b) NPV

c)NPV

Answer 1

Tax rate	21.00%
	Old equipment
WDV	$                        -
Sale price	$                  2,300
Gain/(Loss), (2300-0)	$                  2,300
Tax benefit	$                     483	=2300*21%
Sale price after tax	$                  1,817	=2300-483
Cost of new equipment	$                  6,600
Less sale proceed of old equipment	$                 (1,817)
Net investment	$                  4,783
Depreciation on new equipment
Year	Cost	Dep rate	Depreciation	Depreciation	Tax shield @ 21%	Bonus depreciation	Bonus depreciation	Tax shield @ 21%
1	$                  6,600	16.67%	=6600*16.67%	$           1,100	$         231.00	100%	$       6,600	$1,386.00
2	$                  6,600	16.67%	=6600*16.67%	$           1,100	$         231.00	0%		$           -
3	$                  6,600	16.67%	=6600*16.67%	$           1,100	$         231.00	0%		$           -
4	$                  6,600	16.67%	=6600*16.67%	$           1,100	$         231.00	0%		$           -
5	$                  6,600	16.67%	=6600*16.67%	$           1,100	$         231.00	0%		$           -
6	$                  6,600	16.67%	=6600*16.67%	$           1,100	$         231.00	0%		$           -
After tax value of operating profits
Year	Annual saving		Cost saving	Dep rate	After tax saving
1	$                  1,800		$                        1,800	=1800*(1-21%)	$           1,422
2	$                  1,800		$                        1,800	=1800*(1-21%)	$           1,422
3	$                  1,800		$                        1,800	=1800*(1-21%)	$           1,422
4	$                  1,800		$                        1,800	=1800*(1-21%)	$           1,422
5	$                  1,800		$                        1,800	=1800*(1-21%)	$           1,422
6	$                  1,800		$                        1,800	=1800*(1-21%)	$           1,422
				Total	$           8,532
Calculation of NPV						19%
Year	Capital commitment		Annual benefit	Dep tax shield	Annual free cashflow	PV factor, 1/(1+r)^time	Total * PV factor
0	$            (4,783.00)		$                              -	$                 -	$          (4,783)	1.00000	$(4,783.00)
1			$                        1,422	$              231	$           1,653	0.84034	$ 1,389.08
2			$                        1,422	$              231	$           1,653	0.70616	$ 1,167.29
3			$                        1,422	$              231	$           1,653	0.59342	$     980.92
4			$                        1,422	$              231	$           1,653	0.49867	$     824.30
5			$                        1,422	$              231	$           1,653	0.41905	$     692.69
6	$                        -		$                        1,422	$              231	$           1,653	0.35214	$     582.09
						NPV	$     853.36
jeff jeffy Next > < Previous Related Solutions Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase... Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $7,800 and sell its old washer for $1,600. The new washer will last for 6 years and save $2,300 a year in expenses. The opportunity cost of capital is 17%, and the firm’s tax rate is 21%. a. If the firm uses straight-line depreciation over a 6-year life, what are the cash flows of the project in years 0 to 6?... Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase... Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $6,000 and sell its old washer for $2,000. The new washer will last for 6 years and save $1,500 a year in expenses. The opportunity cost of capital is 16%, and the firm’s tax rate is 21%. a. If the firm uses straight-line depreciation over a 6-year life, what are the cash flows of the project in years 0 to 6?... Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase... Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $3,600 and sell its old washer for $900. The new washer will last for 6 years and save $1,100 a year in expenses. The opportunity cost of capital is 20% and the firm's tax rate is 21%. a. If the firm uses straight-line depreciation over a 6-year life, what are the cash flow of the project in years 0 to 6?... Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase... Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $7,200 and sell its old washer for $2,100. The new washer will last for 6 years and save $1,700 a year in expenses. The opportunity cost of capital is 14%, and the firm’s tax rate is 21%. a. If the firm uses straight-line depreciation over a 6-year life, what are the cash flows of the project in years 0 to 6?... Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase... Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $7,200 and sell its old washer for $2,100. The new washer will last for 6 years and save $1,700 a year in expenses. The opportunity cost of capital is 14%, and the firm’s tax rate is 40%. a. If the firm uses straight-line depreciation to an assumed salvage value of zero over a 6-year life, what is the annual operating cash... Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase... Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $6,600 and sell its old washer for $2,300. The new washer will last for 6 years and save $1,800 a year in expenses. The opportunity cost of capital is 19%, and the firm’s tax rate is 21%. a. If the firm uses straight-line depreciation over a 6-year life, what are the cash flows of the project in years 0 to 6?... Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase... Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $6,600 and sell its old washer for $2,300. The new washer will last for 6 years and save $1,800 a year in expenses. The opportunity cost of capital is 19%, and the firm’s tax rate is 21%. a. If the firm uses straight-line depreciation over a 6-year life, what are the cash flows of the project in years 0 to 6?... Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase... Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $7,200 and sell its old washer for $2,100. The new washer will last for 6 years and save $1,700 a year in expenses. The opportunity cost of capital is 14%, and the firm’s tax rate is 40%. b. What is project NPV? c. What is NPV if the firm uses MACRS depreciation with a 5-year tax life? Use the MACRS depreciation... Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase... Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $4,800 and sell its old washer for $1,200. The new washer will last for 6 years and save $1,400 a year in expenses. The opportunity cost of capital is 18%, and the firm’s tax rate is 21%. a. If the firm uses straight-line depreciation over a 6-year life, what are the cash flows of the project in years 0 to 6?... Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase... Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $8,400 and sell its old washer for $2,400. The new washer will last for 6 years and save $2,400 a year in expenses. The opportunity cost of capital is 19%, and the firm’s tax rate is 21%. a. If the firm uses straight-line depreciation over a 6-year life, what are the cash flows of the project in years 0 to 6?... ADVERTISEMENT Subjects Accounting Advanced Math Anatomy and Physiology Biology Chemistry Civil Engineering Computer Science Economics Electrical Engineering Finance History Math Mechanical Engineering Operations Management Physics Psychology Statistics and Probability Nursing Other ADVERTISEMENT Latest Questions 1. Consider the following nuclides:                                      & In general, teams can be described three ways. Name and define each. JAVASCRIPT: Please create an array of student names and another array of student grades. - Create... Topic - Construction: Structural, loads, tension 1.) Explain why pure tension members are the most efficient... Procter and Gamble​ (PG) paid an annual dividend of $ 1.62$1.62 in 2009. You expect PG... locate a recent case of online child pornography. Write a summary of the incident and describe... #Python 5. Write function called evaluate() that evaluates the following Python expressions or assignments as specified:... ADVERTISEMENT About @ 2020 WizEdu