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Chapter 6-Making Investment Decisions Problems 1 CSC is evaluating a new project to produce encapsulators. The...
CSC is evaluating a new project to produce encapsulators. The initial investment in plant and equipment...
CSC is evaluating a new project to produce encapsulators. The initial investment in plant and equipment is $500,000. Sales of encapsulators in year 1 are forecasted at $200,000 and costs at $100,000. Both are expected to increase by 10% a year in line with inflation. Profits are taxed at 35%. Working capital in each year consists of inventories of raw materials and is forecasted at 20% of sales in the following year. The project will last five years and the...
Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires...
Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $800,000 of equipment. She is unsure what depreciation method to use in her analysis, straight-line or the 3-year MACRS accelerated method. Under straight-line depreciation, the cost of the equipment would be depreciated evenly over its 4-year life (ignore the half-year convention for the straight-line method). The applicable MACRS depreciation rates are 33%, 45%, 15%, and 7%, as discussed in Appendix 12A. The company’s WACC...
6. Problem 12.06 (Depreciation Methods) eBook Kristin is evaluating a capital budgeting project that should last...
6. Problem 12.06 (Depreciation Methods) eBook Kristin is evaluating a capital budgeting project that should last for 4 years. The project requires $200,000 of equipment. She is unsure what depreciation method to use in her analysis, straight- line or the 3-year MACRS accelerated method. Under straight-line depreciation, the cost of the equipment would be depreciated evenly over its 4-year life (ignore the half-year convention for the straight-line method). The applicable MACRS depreciation rates are 33%, 45%, 15%, and 7%. The...
Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires...
Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $900,000 of equipment and is eligible for 100% bonus depreciation. She is unsure whether immediately expensing the equipment or using straight-line depreciation is better for the analysis. Under straight-line depreciation, the cost of the equipment would be depreciated evenly over its 4-year life (ignore the half-year convention for the straight-line method). The company's WACC is 8%, and its tax rate is 20%. What would...
mideque, inc. is considering a project to produce pens. assume that this is a replacement project....
mideque, inc. is considering a project to produce pens. assume that this is a replacement project. the old equipment can be sold for $10,854 as of today. it was bought five years ago for $21,933 and is assumed to last for five more years with no salvage value at the end of its life. the initial cost of the new equipment, including transportation, installation and so forth, will be $23,355. mideque also estimates that this new equipment will save the...
Mideque, Inc., is considering a project to produce pens. Assume that this is a replacement project....
Mideque, Inc., is considering a project to produce pens. Assume that this is a replacement project. The old equipment can be sold for $10,762 as of today. It was bought five years ago for $22,251 and is assumed to last for five more years with no salvage value at the end of its life. The initial cost of the new equipment, including transportation, installation, and so forth, will be $ 23,081. Mideque also estimates that this new equipment will save...
Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires...
Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $950,000 of equipment and is eligible for 100% bonus depreciation. She is unsure whether immediately expensing the equipment or using straight-line depreciation is better for the analysis. Under straight-line depreciation, the cost of the equipment would be depreciated evenly over its 4-year life (ignore the half-year convention for the straight-line method). The company's WACC is 10%, and its tax rate is 30%. What would...
6. Problem 12.06 (Depreciation Methods) eBook Kristin is evaluating a capital budgeting project that should last...
6. Problem 12.06 (Depreciation Methods) eBook Kristin is evaluating a capital budgeting project that should last for 4 years. The project requires $950,000 of equipment. She is unsure what depreciation method to use in her analysis, straight-line or the 3- year MACRS accelerated method. Under straight-line depreciation, the cost of the equipment would be depreciated evenly over its 4-year life (ignore the half-year convention for the straight-line method). The applicable MACRS depreciation rates are 33%, 45%, 15%, and 7%. The...
Suppose your firm uses the NPV rule in making investment decisions and your after-tax OCF is...
Suppose your firm uses the NPV rule in making investment decisions and your after-tax OCF is $925000. Assume same full debt funding at 12%, tax rate is 35%, 20 year period, straight-line depreciation, initial investment of $6000000 and after-tax exit cost of $5000000. What will be the IRR?
You are evaluating a capital project with a Net Investment of $800,000, which includes an increase...
You are evaluating a capital project with a Net Investment of $800,000, which includes an increase in net working capital of $8,000. The project has a life of 20 years with an expected salvage value of $100,000. The project will be depreciated via simplified straight-line depreciation. Revenues are expected to increase by $120,000 per year and operating expenses by $14,000 per year. The firm's marginal tax rate is 40 percent and the cost of capital for this project is 12%....
6. Problem 12.06 (Depreciation Methods) eBook Kristin is evaluating a capital budgeting project that should last for 4 years. The project requires $200,000 of equipment. She is unsure what depreciation method to use in her analysis, straight- line or the 3-year MACRS accelerated method. Under straight-line depreciation, the cost of the equipment would be depreciated evenly over its 4-year life (ignore the half-year convention for the straight-line method). The applicable MACRS depreciation rates are 33%, 45%, 15%, and 7%. The...
6. Problem 12.06 (Depreciation Methods) eBook Kristin is evaluating a capital budgeting project that should last for 4 years. The project requires $950,000 of equipment. She is unsure what depreciation method to use in her analysis, straight-line or the 3- year MACRS accelerated method. Under straight-line depreciation, the cost of the equipment would be depreciated evenly over its 4-year life (ignore the half-year convention for the straight-line method). The applicable MACRS depreciation rates are 33%, 45%, 15%, and 7%. The...
You are evaluating a capital project with a Net Investment of $800,000, which includes an increase in net working capital of $8,000. The project has a life of 20 years with an expected salvage value of $100,000. The project will be depreciated via simplified straight-line depreciation. Revenues are expected to increase by $120,000 per year and operating expenses by $14,000 per year. The firm's marginal tax rate is 40 percent and the cost of capital for this project is 12%....
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