Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect...

Question

Question

Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect loose hen feathers for sale.

business finance

Add a comment Improve this question Transcribed image text

Answer 1

Answer #1

Equipment cost	440,000.00	$
depreciation in year 1 (100%)	440,000.00	$
Life	5	year
Salvage	54,000.00	$
Sales	287,000.00	$
Variable cost (37% of sales)	106,190.00	$
Contribution (sales - VC)	180,810.00	$
Fixed cost	50,000.00	$
Tax rate	23%
Rate	10%

Initial cost
Equipment cost	440,000.00
add :NWC	31,000.00
Total initial cost	471,000.00

	1	2	3	4	5
Contribution	180,810.00	180,810.00	180,810.00	180,810.00	180,810.00
Less : Fixed cost	50,000.00	50,000.00	50,000.00	50,000.00	50,000.00
Less : Depreciation	440,000.00
Profit before tax	(309,190.00)	130,810.00	130,810.00	130,810.00	130,810.00
Tax 23%	0	30,086.30	30,086.30	30,086.30	30,086.30
Profit after tax	(309,190.00)	100,723.70	100,723.70	100,723.70	100,723.70
Add: depreciation	440,000.00
Cash inflow	130,810.00	100,723.70	100,723.70	100,723.70	100,723.70
Add: Salvage and NWC at end					85,000.00
Total cash inflow per year	130,810.00	100,723.70	100,723.70	100,723.70	185,723.70
PV factor 10% [1/(1+r)]^n	0.909	0.826	0.751	0.683	0.621
Discounted inflow	118,918.18	83,242.73	75,675.21	68,795.64	115,319.81

Total discounted inflow	461,951.56
Less initial cost	471,000.00
NPV of project	(9,048.44)

Notes:

Salvage value and NWC is adjusted with last year cash outflow

NPV = Discounted inflow - Initial investment

Cashflow = Profit after tax + depreciation

Add a comment

Answer 2

Similar Homework Help Questions

Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect...

Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect loose hen feathers for sale. The equipment will cost $525,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $105,000 at the end of the project in 5 years. Sales would be $355,000 per year, with annual fixed costs of $67,000 and variable costs equal to 37 percent of sales. The project would require an investment of $65,000...
Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect...

Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect loose hen feathers for sale. The equipment will cost $520,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $102,000 at the end of the project in 5 years. Sales would be $351,000 per year, with annual fixed costs of $66,000 and variable costs equal to 38 percent of sales. The project would require an investment of $63,000...
Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect...

Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect loose hen feathers for sale. The equipment will cost $425,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $45,000 at the end of the project in five years. Sales would be $275,000 per year, with annual fixed costs of $47,000 and variable costs equal to 35 percent of sales. The project would require an investment of $25,000...

Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect...

Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect loose hen feathers for sale. The equipment will cost $425,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $45,000 at the end of the project in five years. Sales would be $275,000 per year, with annual fixed costs of $47,000 and variable costs equal to 35 percent of sales. The project would require an investment of $25,000...
Bourque Enterprises is considering a new project. The project will generate sales of $1.3 million, $1.8...

Bourque Enterprises is considering a new project. The project will generate sales of $1.3 million, $1.8 million, $1.7 million, and $1.2 million over the next four years, respectively. The fixed assets required for the project will cost $1.7 million and will be eligible for 100 percent bonus depreciation. At the end of the project, the fixed assets can be sold for $185,000. Variable costs will be 20 percent of sales and fixed costs will be $440,000 per year. The project...
Marshall-Miller & Company is considering the purchase of a new machine for $50,000, installed. The machine...

Marshall-Miller & Company is considering the purchase of a new machine for $50,000, installed. The machine has a tax life of 5 years. Under the new tax law, the machine is eligible for 100% bonus depreciation, so it will be fully depreciated at t= 0. The firm expects to operate the machine for 4 years and then to sell it for $21,500. If the marginal tax rate is 25%, what will the after-tax salvage value be when the machine is...

CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new...

CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $413,000 is estimated to result in $153,000 in annual pretax cost savings. The press is eligible for 100 percent bonus depreciation and it will have a salvage value at the end of the project of $54,000. The press also requires an initial investment in spare parts inventory of $15,900, along with an additional $2,900 in inventory for each succeeding year of...
Delia Landscaping is considering a new 4-year project. The equipment necessary would cost $173,000 and be...

Delia Landscaping is considering a new 4-year project. The equipment necessary would cost $173,000 and be depreciated on a 3-year MACRS to a book value of zero. The MACRS percentages each year are 33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. At the end of the project, the equipment can be sold for 10 percent of its initial cost. The project will have annual sales of $110,000, variable costs of $27,700, and fixed costs of $12,300. The project...
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...

TexMex Food Company is considering a new salsa whose data are shown below. Under the new...

TexMex Food Company is considering a new salsa whose data are shown below. Under the new tax law, the equipment to be used in the project is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. At the end of the project's life, the equipment would have zero salvage value, and no change in net operating working capital (NOWC) would be required for the project. Revenues and operating costs are expected to be constant...

Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect...

Homework Answers