Question

In: Finance

Operating cash inflows A partnership is considering renewing its equipment to meet increased demand for its...

Operating cash inflows A partnership is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $1.9 million plus $100,000 in installation costs. The firm will depreciate the equipment modifications under MACRS, using a 5-year recovery period. (See Table 4.2 for the applicable depreciation percentages.) Additional sales revenue from the renewal should amount to $1,200,000 per year, and additional operating expenses and other costs (excluding depreciation and interest) will amount to 40% of the additional sales. The firm is subject to a tax rate of 40%. (Note: Answer the following questions for each of the next 6 years.)

  1. What incremental earnings before interest, taxes, depreciation, and amortization will result from the renewal?

  2. What incremental net operating profits after taxes will result from the renewal?

  3. What operating cash flows will result from the renewal?

TABLE 4.2

Percentage by recovery yeara
Recovery year 3 years 5 years 7 years 10 years
  1 33% 20% 14% 10%
  2 45 32 25 18
  3 15 19 18 14
  4   7 12 12 12
  5 12   9   9
  6   5   9   8
  7   9   7
  8   4   6
  9   6
10   6
11                    4
Totals 100% 100% 100% 100%

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE


Related Solutions

Operating cash inflows: A firm is considering renewing its equipment to meet increased demand for its...
Operating cash inflows: A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $1.82 million plus $105,000 in installation costs. The firm will depreciate the equipment modifications under​ MACRS, using a​ 5-year recovery period​ (see table) Additional sales revenue from the renewal should amount to $ 1.13 million per​ year, and additional operating expenses and other costs​ (excluding depreciation and​ interest) will amount to 40% of the additional sales. The...
Incremental operating cash inflows???A firm is considering renewing its equipment to meet increased demand for its...
Incremental operating cash inflows???A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $ 1.85 million plus $ 110 comma 000 in installation costs. The firm will depreciate the equipment modifications under? MACRS, using a? 5-year recovery period? (see table LOADING...?). Additional sales revenue from the renewal should amount to $ 1.18 million per? year, and additional operating expenses and other costs? (excluding depreciation and? interest) will amount to 40...
 A firm is considering renewing its equipment to meet increased demand for its product. The cost...
 A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $ 1.88 million plus $ 111,000 in installation costs. The firm will depreciate the equipment modifications under​ MACRS, using a​ 5-year recovery period​. Additional sales revenue from the renewal should amount to $ 1.17 million per​ year, and additional operating expenses and other costs​ (excluding depreciation and​ interest) will amount to 40 % of the additional sales. The firm is...
Taylor United is considering overhauling its equipment to meet increased demand for its product. The cost...
Taylor United is considering overhauling its equipment to meet increased demand for its product. The cost of equipment overhaul is $3.88 million, plus $213,415.00 in installation costs. The firm will straight-line depreciate the equipment to zero using a 5-year recovery period. Additional sales from the overhaul should amount to $207,575.00 per year, and additional operating expenses and other costs (excluding depreciation) will amount to 36.00% of the additional sales. The firm has an ordinary tax rate of 34.00%. What is...
Wesson United is considering updating its equipment to meet increased demand for its product. The cost...
Wesson United is considering updating its equipment to meet increased demand for its product. The cost of the equipment update is $380,000, plus $20,000 in installation costs. Due to the increased sales, there will be an additional $40,000 working capital needed. The company will depreciate the equipment to zero over its 5 year life using a straight-line depreciation method. Additional sales revenue from the modifications should amount of $220,000 per year, and additional operating expenses and other costs (excluding depreciation)...
The CAB Partnership, although operating profitably, has had a cash flow problem. Unable to meet its...
The CAB Partnership, although operating profitably, has had a cash flow problem. Unable to meet its current commitments, the firm borrowed $33,000 from a bank giving a long-term note. During a recent meeting, the partners decided to obtain additional cash by admitting a new partner to the firm. They feel that the firm is an attractive investment, but that proper management of their liquid assets will be required. Meyers agrees to invest cash in the firm if her chief accountant...
Snyder Company is considering purchasing equipment. The equipment will produce the following cash inflows: Year 1,...
Snyder Company is considering purchasing equipment. The equipment will produce the following cash inflows: Year 1, $33,500; Year 2, $37,500; and Year 3, $46,000. Snyder requires a minimum rate of return of 12%. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) What is the maximum price Snyder should pay for this equipment? (Round answer to 2 decimal places, e.g. 25.25.)
Julie Resler’s company is considering expansion of its current facility to meet increasing demand. If demand...
Julie Resler’s company is considering expansion of its current facility to meet increasing demand. If demand is high in the future, a major expansion will result in an additional profit of $800,000, but if demand is low there will be a loss of $500,000. If demand is high, a minor expansion will result in an increase in profits of $200,000, but if demand is low, there will be a loss of $100,000. The company has the option of not expanding....
Tracey Table's is considering an equipment investment that will cost $950,000. Projected net cash inflows over...
Tracey Table's is considering an equipment investment that will cost $950,000. Projected net cash inflows over the​ equipment's three-year life are as​ follows: Year​ 1: $488,000​;Year​ 2: $390,000​; and Year​ 3: $300,000. Tracey wants to know the​ equipment's IRR. Requirement Use trial and error to find the IRR within a​ 2% range. ​(Hint​: Use Tracey​'s hurdle rate of 10​% to begin the​ trial-and-error process.) Use a business calculator or spreadsheet to compute the exact IRR. Begin by calculating the NPV...
Chandler Chairs is considering an equipment investment that will cost $945,000. Projected net cash inflows over...
Chandler Chairs is considering an equipment investment that will cost $945,000. Projected net cash inflows over the? equipment's three-year life are as? follows: Year? 1:$490,000?; Year? 2: $402,000?; and Year? 3: $282,000. Chandler wants to know the? equipment's IRR. LOADING... ?(Click the icon to view the present value annuity? table.)                                             LOADING... ?(Click the icon to view the present value factor? table.) LOADING... ?(Click the icon to view the future value annuity? table.)                                                      LOADING... ?(Click the icon to view the future...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT