Total Revenue = $36,000,000
Total Non-capital costs = $32,400,000
Capital Equipment purchase Price and Original Market Value = $15,000,000
Equipment Salvage in percent = 2%
Depreciable Life of the Capital, Years = 14
Annual return on capital invested in a similarly risky investment = 12%
Accounting Annual Profit = $1,050,000
How would I calculate the economic profits using the average annual opportunity cost of the capital?
Total Revenue = $36,000,000 Total Non-capital costs = $32,400,000 Capital Equipment purchase Price and Original Market...
Questions: 1. Assuming that the tax laws require accountants to use a 10-year straight-line depreciation of the original purchase price net of the salvage value (e.g., a $10,000 piece of equipment with a salvage value of $1,000 would have annual depreciation of ($10,000 - $1,000)/10 = $900), calculate the annual accounting profits. 2. Calculate the economic profits using the average annual opportunity cost of the capital. See ML203's third example for guidance. You are given the following information for a...
Mom’s Cookies, Inc., is considering the purchase of a new cookie oven. The original cost of the old oven was $48,000; it is now five years old, and it has a current market value of $22,500. The old oven is being depreciated over a 10-year life toward a zero estimated salvage value on a straight-line basis, resulting in a current book value of $24,000 and an annual depreciation expense of $4,800. The old oven can be used for six more...
XYZ Company is considering the purchase of a new piece of equipment and has gathered the following information about the purchase: Initial investment .............. ? Annual cost savings ............. $20,000 Salvage value in 6 years ........ 20% of original cost of the equipment Repair in 4 years ............... $14,000 Cost of capital ................. 10% Life of project ................. 6 years The net present value of this new equipment was -$37,779. Calculate the salvage value for this piece of equipment.
ABC Company is planning to purchase an equipment. The purchase price of the equipment is $350,000. The company plans to make a down payment of 25% of the first cost, and for the remainder of the cost of the equipment, they plan to take a loan. The company will pay off this loan in 7 years at 10% in equal annual payments. ABC believes that the equipment can be sold for $75,000 at the end of its 15-year service life....
Enable Company is considering the purchase of production equipment that costs $1100000. The equipment is expected to generate an annual cash flow of $400000 and have a useful life of 5 years with no salvage value. The firm's cost of capital is 13 percent. The straight-line method with no mid-year convention is used. 40 Ignoring income taxes, the net present value of the project is A ($255,700) B $308,000 C $255,700 D $900,000
Mom’s Cookies, Inc., is considering the purchase of a new cookie oven. The original cost of the old oven was $40,000; it is now five years old, and it has a current market value of $17,500. The old oven is being depreciated over a 10-year life toward a zero estimated salvage value on a straight-line basis, resulting in a current book value of $20,000 and an annual depreciation expense of $4,000. The old oven can be used for six more...
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...
Mom's Cookies Inc. is considering the purchasing of a new cookie oven. The original cost of the old oven was $44,000 it os now five years old, and it has a current market value of $19,500. The old oven is being depreciated over a 10-year life towards a zero estimated salvage value on a straight line basis resulting in a current book value of $22,000 and an annual depreciation expense of $4,400.The old oven can be used for six more...
XYZ Company is considering the purchase of a new piece of equipment and has gathered the following information about the purchase: Initial investment ........ Annual cost savings Salvage value in 6 years .. Repair in 4 years ....... Cost of capital Life of project .. $20,000 20% of original cost of the equipment $14,000 10% 6 years The net present value of this new equipment was -$37,779. Calculate the salvage value for this piece of equipment. You will need to...
XYZ Company is considering the purchase of a new piece of equipment and has gathered the following information about the purchase: Initial investment .............. ? Annual cost savings ............. $20,000 Salvage value in 6 years ........ 20% of original cost of the equipment Repair in 4 years ............... $14,000 Cost of capital ................. 10% Life of project ................. 6 years The net present value of this new equipment was -$37,779. Calculate the salvage value for this piece of equipment. You...