Question

Q1.ABC Company purchased a new machinery two years ago for $61724. Today, it is selling this machinery for $21938. What is the after-tax salvage value if the tax rate is 36 percent?

The MACRS allowance percentages are as follows, commencing with year one: 20.00, 32.00, 19.20, 11.52, 11.52, and 5.76 percent.

Q2.ABC Company purchased $85737 of equipment 4 years ago. The equipment is 7-year MACRS property. The firm is selling this equipment today for $52564. What is the After-tax Salvage Value if the tax rate is 21%?

The MACRS allowance percentages are as follows, commencing with year one: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent.

Q3. Six years ago, XYZ Company invested $40275 in a new machinery. The investment in net working capital was $6881 which would be recovered at the end of the project. Today, XYZ Company is selling the machinery for $24860. Today, the book value of the machinery is $20654. The tax rate is 27 percent. What are the terminal cash flows in Year 6?

Q4. A 5-yr project has an initial requirement of $122569 for new equipment and $8905 for net working capital. The installation cost is $11745. The fixed assets will be depreciated to a zero book value over 5 years and have an estimated salvage value of $25201. All of the net working capital will be recouped at the end of the project. The annual operating cash flow is $65755. The cost of capital is 10% and the tax rate is 33%. What is the net present value of the project?

Q5. ABC purchased $94237 of equipment 2 years ago. The equipment is 7-year MACRS property. What is the current book value of the equipment?
The MACRS allowance percentages are as follows, starting with Year 1: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent.

Q6. XYZ is considering a 3-yr project. The initial outlay is $120,000, annual cash flow is $50,000 and the terminal cash flow is $10,000. The required rate of return (cost of capital) is 15%. The net present value is $736.42. What if the annual cash flow increases to $53,000 instead? Re-calculate the NPV.

need this in 15 mins

Answer 1

Answer to Question 1:

Cost of Machine = $61,724

Depreciation, Year 1 = 20.00% * $61,724
Depreciation, Year 1 = $12,344.80

Depreciation, Year 2 = 32.00% * $61,724
Depreciation, Year 2 = $19,751.68

Book Value = $61,724 - $12,344.80 - $19,751.68
Book Value = $29,627.52

After-tax Salvage Value = Salvage Value - (Salvage Value - Book Value) * tax rate
After-tax Salvage Value = $21,938 - ($21,938 - $29,627.52) * 0.36
After-tax Salvage Value = $24,706.23

Answer to Question 2:

Cost of Machine = $85,737

Depreciation, Year 1 = 14.29% * $85,737
Depreciation, Year 1 = $12,251.82

Depreciation, Year 2 = 24.49% * $85,737
Depreciation, Year 2 = $20,996.99

Depreciation, Year 3 = 17.49% * $85,737
Depreciation, Year 3 = $14,995.40

Depreciation, Year 4 = 12.49% * $85,737
Depreciation, Year 4 = $10,708.55

Book Value = $85,737 - $12,251.82 - $20,996.99 - $14,995.40 - $10,708.55
Book Value = $26,784.24

After-tax Salvage Value = Salvage Value - (Salvage Value - Book Value) * tax rate
After-tax Salvage Value = $52,564 - ($52,564 - $26,784.24) * 0.21
After-tax Salvage Value = $47,150.25