ZuoTi.Pro
Question

Company A is considering the purchase of a new piece of equipment which would cost $10,000...

Company A is considering the purchase of a new piece of equipment which would cost $10,000 with a 5 year useful life and have a salvage of $500 at the end of the 5 year period. Marginal tax rate is 30%, avg tax rate 20%. Assume straight line depreciation, the net effect of annual depreciation on the free cash flow is$___ in each of the 5 years.

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1
PARTICULARS AMOUNT
A. Price 10000
B. Salvage value 500
C. Life 5
D. Depreciation (A-B)/C 1900
E. Marginal Tax Rate 30%

F. Effective Cash outflow savings

(D*E)

 570
0 0
Add a comment
Know the answer?
Add Answer to:
Company A is considering the purchase of a new piece of equipment which would cost $10,000...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Question 10 10 points Save Answer Canyon Buff Corp. is considering the purchase of a new...

    Question 10 10 points Save Answer Canyon Buff Corp. is considering the purchase of a new piece of equipment which would cost $11,000. This equipment will have a five-year useful life and have a salvage value of $1,000 at the end of the five-year period. The marginal tax rate is 30 % and the average tax rate is 20%. Assume a straight-line depreciation, the net effect of annual depreciation on the free cash flow is $ in each of the...

  • Southport Company is considering the purchase of a piece of equipment that costs $100,000. The equipment...

    Southport Company is considering the purchase of a piece of equipment that costs $100,000. The equipment would be depreciated on a straight-line basis to its expected salvage value of $10,000 over its 10-year useful life. Assuming a tax rate of 40%, what is the annual amount of the depreciation tax shield provided by this investment? Multiple Choice $4,000 $9,000 $3,600 None of these answers is correct.

  • Big Cat Company is considering the purchase of a new piece of equipment. Relevant information concerning...

    Big Cat Company is considering the purchase of a new piece of equipment. Relevant information concerning the equipment follows: Purchase cost: $180,000 Annual cost savings that will be provided by the equipment: $37,500 Life of the equipment: 12 years (Ignore income taxes.) Compute the payback period for the equipment. If the company rejects all proposals with a payback period of more than four years, would the equipment be purchased? Compute the simple rate of return on the equipment. Use straight-line...

  • Tank Ltd is considering undertaking the purchase of a new piece of equipment that is expected...

    Tank Ltd is considering undertaking the purchase of a new piece of equipment that is expected to increase revenue by $12,000 each year for six years. The equipment will increase costs $4,000 each year for six years. It costs $32,000 to purchase today and for tax purposes must be depreciated down to zero over its 8 year useful life using the straight-line method. If Tank is actually forecasting a salvage (for capital budgeting purposes) of $5,000 after 6 years, what...

  • Graziano Corporation (GC) is considering a project to purchase new equipment. The equipment would be depreciated...

    Graziano Corporation (GC) is considering a project to purchase new equipment. The equipment would be depreciated by the straight-line method over its 3-year life and would have a zero-salvage value. The project requires an investment of $6,000 today on net working capital. Revenues and other operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other company’s products and would reduce its pre-tax annual cash flows of $5,000 per year. The investment...

  • Nelson Corp. is considering the purchase of a new piece of equipment. The cost savings from...

    Nelson Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $112.000. The equipment will have an initial cost of $224,000 and have a 3 year life. If the salvage value of the equipment is estimated to be $87,000, what is the payback period? Ignore income taxes Multiple Choice 0 122 years O 200 years O 278 years O 500 years O

  • Belmont Corp. is considering the purchase of a new piece of equipment. The cost savings from...

    Belmont Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $200,000. The equipment will have an initial cost of $1,000,000 and have an 8-year life. If there is no salvage value of the equipment, what is the payback period? 8 years 5 years 1.6 years 3.08 years

  • I keep getting 2000 for the answer, and I have been informed that this is wrong....

    I keep getting 2000 for the answer, and I have been informed that this is wrong. Please help! Question 10 10 points Save Answer Canyon Buff Corp. is considering the purchase of a new piece of equipment which would cost $11,000. This equipment will have a five-year useful life and have a salvage value of $1,000 at the end of the five-year period. The marginal tax rate is 30% and the average tax rate is 20%. Assume a straight-line depreciation,...

  • Wright Corp. is considering the purchase of a new piece of equipment, which would have an...

    Wright Corp. is considering the purchase of a new piece of equipment, which would have an initial cost of $1,000,000 and a 5-year life. There is no salvage value for the equipment. The increase in cash flow each year of the equipment's life would be as follows: Year 1 $ 375,000 Year 2 $ 350,000 Year 3 $ 285,000 Year 4 $ 230,000 Year 5 $ 185,000 What is the payback period? 3.00 years 2.96 years 2.39 years 3.51 years

  • Nelson Corp is considering the purchase of a new piece of equipment. The cost savings from...

    Nelson Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $173,850. The equipment will have an initial cost of $605,000 and have a 5 year life. If the salvage value of the equipment is estimated to be $250,000, what is the accounting rate of return? Ignore income taxes. a. 28.74% b. 17.00% c. 14.50% d. 30.41%

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT