Question
In: Finance
A firm is contemplating a new, mechanized welding system to replace its current manual system. It...
A firm is contemplating a new, mechanized welding system to
replace its current manual system. It costs $600,000 to get the new
system. The cost will be depreciated at a 30 percent CCA rate. Its
expected life is four years. The system would actually be worth
$100,000 at the end of fours years. The management thinks the new
system could save $180,000 per year pre-tax in labour costs. The
tax rate is 44 percent and the required return is 15 percent.
Calculate the total cash flows year 1–4?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
We’re contemplating a new automatic surveillance system to replace our current contract security system. It will...
We’re contemplating a new automatic surveillance system to
replace our current contract security system. It will cost $400,000
to get the new system. The cost will be depreciated straight-line
to zero over the system’s five-yearexpected life.
The system is expected to be worth $50,000 at the end of five
years. We think the new system will save us $105,000, before taxes,
per year in contract security costs.
The tax rate is 34 percent. The required return is 12 percent.
Create...
We’re contemplating a new automatic surveillance system to replace our current contract security system. It will...
We’re contemplating a new automatic surveillance system to
replace our current contract security system. It will cost $400,000
to get the new system. The cost will be depreciated straight-line
to zero over the system’s five-yearexpected life.
The system is expected to be worth $50,000 at the end of five
years. We think the new system will save us $105,000, before taxes,
per year in contract security costs.
The tax rate is 34 percent. The required return is 12 percent.
Create...
Acer is contemplating to replace its old machinery with a new one. The cost of old...
Acer is contemplating to replace its old machinery with a new
one. The cost of old machinery is 960,000. The old machinery was
bought 6 years ago with a total useful life of 13 years.
If sold now, the old machinery can be salvaged at $17,000. The
existing machinery has the production capacity of 30,000 units.
Acer Inc.'s finished product is called Product X which can be sold
at $75, and has per unit variable cost of $42. The annual...
A company plans to replace its manual production system with an automated one Currently 5 people...
A company plans to replace its manual production system with
an automated one Currently 5 people (2 on first shift, 2 on second,
and one on third) are used. Their annual wages are $41,250 per
person. Operating and maintenance of the new automated system will
be 5.5% of the first cost of the system. The income tax rate is 40%
and straight line depreciation is used over a 15 year life with no
salvage. Salvage is expected to be 8%...
Your firm is contemplating the purchase of a new $850,000 inventory control system. The system will...
Your firm is contemplating the purchase of a new
$850,000 inventory control system. The system will be depreciated
using bonus depreciation over its four-year life. It
will be worth $75,000 at the end of that time. You
believe that the inventory control system will allow you to
increase sales by $250,000 per year but cost will go up by $40,000
per year. Also, you will have to increase net working
capital by $90,000 at the beginning of the project. Net
working capital will revert...
Your firm is contemplating the purchase of a new $700,000 computer-based entry system. The system will...
Your firm is contemplating the purchase of a new $700,000
computer-based entry system. The system will be depreciated
straight-line to zero over its five year life. It will be worth
$60,000 at the end of that time. You will need to increase your
working capital by $81,000 by purchasing additional inventory at
the beginning of the project (this is a one-time increase). The tax
rate is 34 percent and the required return on the project is 15
percent.
If the...
Your firm is contemplating the purchase of a new $595,000 computer-based order entry system. The system...
Your firm is contemplating the purchase of a new $595,000
computer-based order entry system. The system will be depreciated
straight-line to zero over its five-year life. It will be worth
$63,000 at the end of that time. You will save $225,000 before
taxes per year in order processing costs, and you will be able to
reduce working capital by $78,000 (this is a one-time reduction).
If the tax rate is 23 percent, what is the IRR for this project?
(Do...
Your firm is contemplating the purchase of a new $630,000 computer-based order entry system. The system...
Your firm is contemplating the purchase of a new $630,000
computer-based order entry system. The system will be depreciated
straight-line to zero over its five-year life. It will be worth
$70,000 at the end of that time. You will save $260,000 before
taxes per year in order processing costs, and you will be able to
reduce working capital by $85,000 (this is a one-time reduction).
If the tax rate is 25 percent, what is the IRR for this project?
(Do...
Your firm is contemplating the purchase of a new $518,000 computer-based order entry system. The system...
Your firm is contemplating the purchase of a new $518,000
computer-based order entry system. The system will be depreciated
straight-line to zero over its 5-year life. It will be worth
$50,400 at the end of that time. You will be able to reduce working
capital by $70,000 (this is a one-time reduction). The tax rate is
24 percent and your required return on the project is 23 percent
and your pretax cost savings are $164,550 per year. What is the...
Your firm is contemplating the purchase of a new $585,000 computer-based order entry system. The system...
Your firm is contemplating the purchase of a new $585,000
computer-based order entry system. The system will be depreciated
straight-line to zero over its 5-year life. It will be worth
$73,000 at the end of that time. You will save $180,000 before
taxes per year in order processing costs, and you will be able to
reduce working capital by $88,000 (this is a one-time reduction).
If the tax rate is 22 percent, what is the IRR for this
project?
NPV...
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