Question

In: Economics

Alpha Semiconductor Co. is evaluating whether to add another IC production line. The line would cost...

Alpha Semiconductor Co. is evaluating whether to add another IC production line. The line would cost $50000 and would have no market value at the end of its 7 year life. The facility would be depreciated using straight line depreciation. Gross income (GI) and annual operating costs (AOC) are expected to be $12500 and $4000 in year 1, respectively. GI and AOC are expected to increase by $500 per year for the next 6 years. The company’s effective tax rate is 40% and it uses an after-tax MARR of 15%. Is it worthwhile to invest?
Dt=

Year
P
GI
E
CFBT
D
TI
T
CFAT
0
1
2
3
4
5
6
7
D=
DR=
CG=
CL=

Solutions

Expert Solution

Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
Cost of Equipment            -50,000
Revenue           12,500           13,000           13,500           14,000           14,500           15,000           15,500
AOC             4,000             4,500             5,000             5,500             6,000             6,500             7,000
Depreciation Rate 14.29% 14.29% 14.29% 14.29% 14.29% 14.29% 14.29%
Depreciation               7,143             7,143             7,143             7,143             7,143             7,143             7,143
Net Profit             1,357             1,357             1,357             1,357             1,357             1,357             1,357
Tax @ 40%                543                543                543                543                543                543                543
Net Profit after tax                814                814                814                814                814                814                814
Add Depreciation
Cash Flows after tax            -50,000             7,957             7,957             7,957             7,957             7,957             7,957             7,957
PVF @15%                       1             0.870             0.756             0.658             0.572             0.497             0.432             0.376
PV of Cash flows            -50,000             6,919             6,017             5,232             4,550             3,956             3,440             2,991
NPV            -19,886

Depreciation Rate = 100%/7 => 14.29%.

As project is yielding negative NPV it is not recommended to proceed with this.

Thanks!!.

Please Like and Support!!


Related Solutions

Question 2 In an integrated circuit (IC) production line, the length of ICs is known to...
Question 2 In an integrated circuit (IC) production line, the length of ICs is known to be normally distributed with a mean of 210 mm and a standard deviation of Q mm. (a) Calculate the value of the standard deviation, Q if it is known that 18.07% of the length of ICs will be at minimum, 230 mm. [4 marks] (b) Calculate the probability that the length of ICs will be at least 189 mm but not more than 210...
TopCap Co. is evaluating the purchase of another sewing machine that will be used to manufacture...
TopCap Co. is evaluating the purchase of another sewing machine that will be used to manufacture sport caps. The invoice price of the machine is $120,500. In addition, delivery and installation costs will total $4,500. The machine has the capacity to produce 12,000 dozen caps per year. Sales are forecast to increase gradually, and production volumes for each of the five years of the machine's life are expected to be as follows: Use Table 6-4. (Use appropriate factor(s) from the...
TopCap Co. is evaluating the purchase of another sewing machine that will be used to manufacture...
TopCap Co. is evaluating the purchase of another sewing machine that will be used to manufacture sport caps. The invoice price of the machine is $124,500. In addition, delivery and installation costs will total $4,000. The machine has the capacity to produce 12,000 dozen caps per year. Sales are forecast to increase gradually, and production volumes for each of the five years of the machine's life are expected to be as follows: Use Table 6-4. (Use appropriate factor(s) from the...
TopCap Co. is evaluating the purchase of another sewing machine that will be used to manufacture...
TopCap Co. is evaluating the purchase of another sewing machine that will be used to manufacture sport caps. The invoice price of the machine is $120,500. In addition, delivery and installation costs will total $4,500. The machine has the capacity to produce 12,000 dozen caps per year. Sales are forecast to increase gradually, and production volumes for each of the five years of the machine's life are expected to be as follows: Use Table 6-4. (Use appropriate factor(s) from the...
TopCap Co. is evaluating the purchase of another sewing machine that will be used to manufacture...
TopCap Co. is evaluating the purchase of another sewing machine that will be used to manufacture sport caps. The invoice price of the machine is $123,000. In addition, delivery and installation costs will total $5,000. The machine has the capacity to produce 12,000 dozen caps per year. Sales are forecast to increase gradually, and production volumes for each of the five years of the machine's life are expected to be as follows: Use Table 6-4. (Use appropriate factor(s) from the...
TopCap Co. is evaluating the purchase of another sewing machine that will be used to manufacture...
TopCap Co. is evaluating the purchase of another sewing machine that will be used to manufacture sport caps. The invoice price of the machine is $122,500. In addition, delivery and installation costs will total $5,000. The machine has the capacity to produce 12,000 dozen caps per year. Sales are forecast to increase gradually, and production volumes for each of the five years of the machine's life are expected to be as follows: Use Table 6-4. (Use appropriate factor(s) from the...
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,140,000, and it would cost another $18,000 to install it.
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,140,000, and it would cost another $18,000 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $575,000. The machine would require an increase in net working capital (inventory) of $16,000. The sprayer would not change revenues, but it is...
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $980,000, and it would cost another $23,500 to install it.
Problem 11-06 New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $980,000, and it would cost another $23,500 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $512,000. The machine would require an increase in net working capital (inventory) of $15,000. The sprayer would not change...
The Reynold Company is considering adding a robotic paint sprayer to its production line. The sprayer’s base price is $1,200,000, and it would cost another $18,500 to install it.
The Reynold Company is considering adding a robotic paint sprayer to its production line. The sprayer’s base price is $1,200,000, and it would cost another $18,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $770,000. The MACRS rates for the first 3 years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $19,500. The sprayer would not change revenues, but...
The state of New Jersey is trying to determine whether to add a train line or...
The state of New Jersey is trying to determine whether to add a train line or not, given the new reality of social distancing.Using a selected sample of every fourth person emerging from the PATH train at Newark’s Penn Station, they were only able to find ten people for their sample.Each person was asked how many miles they would drive to work each week, if the trains did not allow for safe social distancing. The answers were: 150 750 300...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT