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

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

Solutions

Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

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

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...

Equipment costing $590,000 with an expected useful life of 10 years and an expected salvage value...

Equipment costing $590,000 with an expected useful life of 10 years and an expected salvage value of $40,000, was purchased at the beginning of the year. Calculate the depreciation expense for the first five years using: (a) Sum-of-the-years' digits method. Do not round until final calculation. Round answers to the nearest whole number. (b) Double-declining balance method (without straight-line switchover). Do not round until final calculation. Round answers to the nearest whole number.

A company invests in an equipment that costs $300k with $40k salvage value and will be...

A company invests in an equipment that costs $300k with $40k salvage value and will be depreciated over 8 years according to the DDB method. The equipment could generate revenues of $25k in the first year and increase by 5000$ every year thereafter. The operating and maintenance costs of the equipment are 1200$ in the first year and increase by 10% each year thereafter. The tax rate of the company Income is 32%. A. Develop the cash flow before tax...

a place requires the purchase of $675,000 in new equipment. It expects to sell the equipment...

a place requires the purchase of $675,000 in new equipment. It expects to sell the equipment at the end of the project for 25% of its original cost, but some assets will remain in the CCA class. Annual sales from this project are estimated at $240,000. Initial net working capital equal to 30.00% of sales will be required. All of the net working capital will be recovered at the end of the project. The firm requires a 9.00% return on...

A new piece of specialty equipment costs $1,500,000 and will be depreciated to an expected salvage value of $300,000 on a straight-line basis over its 3-year life

A new piece of specialty equipment costs $1,500,000 and will be depreciated to an expected salvage value of $300,000 on a straight-line basis over its 3-year life. Assuming a tax rate of 30%, what is its after-tax salvage value if the equipment is actually sold after 2 years for $600,000? $70,000 $240,000 $560,000 $770,000 $630,000

Net cost of new equipment: 1,000,000 life: 10 years, no salvage value, straight line depreciation Forecasted...

Net cost of new equipment: 1,000,000 life: 10 years, no salvage value, straight line depreciation Forecasted sales volume: 10,000 units per year variable costs: 60 dollars per unit fixed: 30 dollars per unit 150,000 per year Taxes are 40% and cost of capital is 14% Break even sales are said to be 8,333.3. Sales are expected to be 10,000 units and project is expected to generate net income of 30,000 per year. You are told it should be accepted. Revenue...

An industry will require the purchase of $675,000 in new equipment. The company expects to sell...

An industry will require the purchase of $675,000 in new equipment. The company expects to sell the equipment at the end of the project for 25% of its original cost, but some assets will remain in the CCA class. Annual sales from this project are estimated at $240,000. Initial net working capital equal to 30.00% of sales will be required. All of the net working capital will be recovered at the end of the project. The firm requires a 9.00%...

A company purchases a piece of equipment for $15,000. After nine years, the salvage value is...

A company purchases a piece of equipment for $15,000. After nine years, the salvage value is $900. The annual insurance cost is 5% of the purchase price, the electricity cost is $600/yr, and the maintenance and replacement parts cost is $120/yr. The nominal annual interest rate is 9.6%, compounded monthly. Neglecting taxes, what is most nearly the present worth of the equipment if it is expected to earn the company $4500 per year? $2300 $2800 $3200 $3500

Equipment costing $60,000 with a salvage value of $12,000 and an estimated life of 8 years...

Equipment costing $60,000 with a salvage value of $12,000 and an estimated life of 8 years has been depreciated using the straight-line method for 2 years. Assuming a revised estimated total life of 5 years and no change in the salvage value, the depreciation expense for Year 3 would be A. $16,000. B. $9,600. C. $7,200. D. $12,000.

1. A piece of equipment was purchased new at $35,000. The salvage value is $1500 after...

1. A piece of equipment was purchased new at $35,000. The salvage value is $1500 after its 8 year service life. Determine the depreciation and blue book value for the life of the asset, assuming: a) straight line depreciation b) MACRS (use 5 yr table) c) SOYD method d) DDB method

Subjects