Question
In: Accounting
ANALYSIS OF COSTS WITH INFLATION A company is considering purchasing equipment to conduct quality inspections of...
ANALYSIS OF COSTS WITH INFLATION
A company is considering purchasing equipment to
conduct quality inspections of one of its finished products. The
equipment will cost $ 150,000 and it is estimated that due to its
specialized function it will have no resale value at the end of its
useful life. The equipment's operation and maintenance costs are
estimated to be $ 1,000 in the first year, and management expects
these costs to increase in subsequent years according to the
inflation rate. The company estimates that the useful life of the
equipment will be 10 years. The team qualifies for depreciation
purposes as a 5-year MACRS property. Assume that headline inflation
during that period will be 3%, the tax rate 35%, and the
inflation-adjusted rate of return 15% (Market Rate).
Determine:
1) The present value PW and EAW of the costs associated with this
purchase in a pre-tax analysis.
2) The PW present value and the EAW of the costs associated with
this purchase in an after-tax analysis.
You must use Excel to solve this problem and display all your
computations. Include comments and
annotations.
You must use Excel to solve these problems and display all your
computations. Include comments and annotations when you deem it
necessary (for example, to make a presumption).
PLEASE USE EXCEL ONLY AND IT'S FUNCTIONS. IT'S VERY
IMPORTANT TO MY CLASS. Thanks a lot!
Solutions
ekkarill92 answered 2 years agoRelated Solutions
A company is considering purchasing equipment to conduct quality inspections of one of its finished products....
A company is considering purchasing equipment to
conduct quality inspections of one of its finished products. The
equipment will cost $ 150,000 and it is estimated that due to its
specialized function it will have no resale value at the end of its
useful life. The equipment's operation and maintenance costs are
estimated to be $ 1,000 in the first year, and management expects
these costs to increase in subsequent years according to the
inflation rate. The company estimates that...
A company is considering purchasing equipment to conduct quality inspections of one of its finished products....
A company is considering purchasing equipment to
conduct quality inspections of one of its finished products. The
equipment will cost $ 150,000 and it is estimated that due to its
specialized function it will have no resale value at the end of its
useful life. The equipment's operation and maintenance costs are
estimated to be $ 1,000 in the first year, and management expects
these costs to increase in subsequent years according to the
inflation rate. The company estimates that...
M&M company is considering purchasing equipment to conduct quality inspections of one of its finished products....
M&M company is considering purchasing equipment to
conduct quality inspections of one of its finished products. The
equipment will cost $ 150,000 and it is estimated that due to its
specialized function it will have no resale value at the end of its
useful life. The equipment's operation and maintenance costs are
estimated to be $ 1,000 in the first year, and management expects
these costs to increase in subsequent years according to the
inflation rate. The company estimates that...
A company is considering purchasing equipment to perform quality inspections of one of its finished products....
A company is considering purchasing equipment to perform quality
inspections of one of its finished products. The equipment will
cost $150,000 and it is estimated that its specialized function
will have no resale value at the end of its useful life. It is
estimated that the operating and maintenance costs of the equipment
will be $1,000 in the first year and management expects these costs
to increase in subsequent years in line with the inflation rate.
The company estimates that...
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A company is considering of purchasing a testing equipment costing $50,000. This equipment is expected to...
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(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.
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