A widget machine will cost $480,000. The anticipated increase in revenue will be $140,000/year for 5-years....

A widget machine will cost $480,000. The anticipated increase in revenue will be $140,000/year for 5-years. Annual expenses will be $30,000/year for 5-years. The depreciable life is estimated to be 5-years and the salvage value will equal $35,000. Additional inventory necessary to run the machine will be $26,000. Initial training expenses are $20,000. Tax rate equals 40%. A. Find the discounted payback and convert this into a percentage.

Solutions

Expert Solution

Initial Investmeny = Purcahse price of equipment + value of inventory used + inital training \

= 480000 + 26000 + 20000 = 526000

Depreciation = ( Historical cost - salvage value ) / no of years = ( 480000 - 35000) / 5 = 89000

Particulars	1	2	3	4	5
Revenue (A)	140000	140000	140000	140000	140000
Expenses (B)	30000	30000	30000	30000	30000
Depreciation (C )	89000	89000	89000	89000	89000
Profit before tax (A -B-C)	21000	21000	21000	21000	21000
Tax (E)	8400	8400	8400	8400	8400
Cash flow (F =D - E + C)	101600	101600	101600	101600	101600
Salvage value (G)	0	0	0	0	35000
refund of Inventory (H)	0	0	0	0	26000
Total cash flow (I = F + G+ H)	101600	101600	101600	101600	162600
Cummulative cash flows	101600	203200	304800	406400	569000

Payback beriod = 4 + ( 526000 - 406400) / 162600 = 4.74 years

The discount rate is missing to calculate the payback period.

Payback period = 4.74 / 5 = 94.8%

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

A new booster machine will cost $480,000. The anticipated increase in revenue will be $140,000/year for...

A new booster machine will cost $480,000. The anticipated increase in revenue will be $140,000/year for 5-years. Annual expenses will be $30,000/year for 5-years. The depreciable life is estimated to be 5-years and the salvage value will equal $35,000. Additional inventory necessary to run the machine will be $26,000. Initial training expenses are $20,000. Tax rate equals 40%.  Find the NPV@10%.  Find the IRR.  Find the discounted payback and convert this into a percentage.

A corporation bought a 7-year class machine 3 years ago for $140,000 and sold it today...

A corporation bought a 7-year class machine 3 years ago for $140,000 and sold it today for $100,000. The machine is being depreciated to zero salvage value using straight-line method. If the firm's tax rate is 34%, what is the tax effect of the sale? -$6,800 -$3,400 $3,400 $6,800 question: What is the Payback period of a project with cash flows of -350,000 in year 0, then 100,000 each in years 1, 2 & 3, then 250,000 in year 4?...

Delta Widget Corp. (DWC) is considering whether to purchase a new widget-producing machine at a cost...

Delta Widget Corp. (DWC) is considering whether to purchase a new widget-producing machine at a cost of $900,000. The machine would produce 100,000 widgets per year during its useful life of three years, and would be depreciated for tax purposes at a rate of $300,000 per year. No salvage value is expected. Currently, widget prices are $15. The materials and labor required to produce a widget cost $9. The inflation rate is expected to be 3% per year, and the...

A company is considering the purchase of a large stamping machine that will cost $140,000, plus...

A company is considering the purchase of a large stamping machine that will cost $140,000, plus $6,500 transportation and $12,000 installation charges. It is estimated that, at the end of five years, the market value of the machine will be $50,000. The IRS has established that this machine will fall under a three-year MACRS class life category. The justifications for the machine include $35,000 savings per year in labor and $45,000 savings per year in reduced materials. The before-tax MARR...

XYZ purchased a machine 5 years ago at a cost of $95,000. The machine had an...

XYZ purchased a machine 5 years ago at a cost of $95,000. The machine had an expected life of 10 years at the time of purchase, and it is being depreciated by the straight-line method by $9,500 per year. If the machine is not replaced, it can be sold for $11,000 at the end of its useful life. A new machine can be purchased for $170,000, including installation costs. During its 5-year life, it will reduce cash operating expenses by...

Sales revenue for Wholesales ehf is ISK 480,000. Its variable cost is 40% of sales and...

Sales revenue for Wholesales ehf is ISK 480,000. Its variable cost is 40% of sales and fixed costs are ISK 80,000. 1. What does the Wholesalers ehf need to sell for great value in order for the business to be in balance (ie where income and expenses are equal)? 2. What is the company's degree of operating leverage, etc. current sales? 3. If Wholesale Sales ehf's sales increase by 10%, how will the results change? Calculate both the percentage change...

Clairmont Corporation is considering the purchase of a machine that would cost $140,000 and would last...

Clairmont Corporation is considering the purchase of a machine that would cost $140,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $18,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $30,000. The company requires a minimum pretax return of 7% on all investment projects. (Ignore income taxes in this problem.)

A machine purchased 3 years ago for $140,000 is now too slow to satisfy the demand...

A machine purchased 3 years ago for $140,000 is now too slow to satisfy the demand of the customers. It can be upgraded now for $77,000 or sold to a smaller company internationally for $38,000. The upgraded machine will have an annual operating cost of $93,000 per year and a $28,000 salvage value in 3 years. If upgraded, the presently owned machine will be retained for only 3 more years, then replaced with a machine to be used in the...

A machine purchased 3 years ago for $140,000 is now too slow to satisfy the demand...

A machine purchased 3 years ago for $140,000 is now too slow to satisfy the demand of the customers. It can be upgraded now for $81,000 or sold to a smaller company internationally for $43,000. The upgraded machine will have an annual operating cost of $79,000 per year and a $29,000 salvage value in 3 years. If upgraded, the presently owned machine will be retained for only 3 more years, then replaced with a machine to be used in the...

A new project has an intial cost of $480,000 with an expected life of 8 years.

A new project has an intial cost of $480,000 with an expected life of 8 years. The project is expected to have earnings before depreciation and taxes of $125,000 per year. If the projected is being depreciated over a 3-year term and the firm’s tax rate is 40%, calculate the cashflows of the project over its estimated life.

Subjects