Homework Answers
| Tax rate | 40% | ||||||||
| Calculation of annual depreciation | |||||||||
| Depreciation | Year-1 | Year-2 | Year-3 | Year-4 | Year-5 | Year-6 | Year-7 | Total | |
| Cost | $ 325,000 | $ 243,750 | $ 182,813 | $ 137,109 | $ 102,832 | $ 77,124 | $ 57,843 | ||
| Dep Rate | 25.00% | 25.00% | 25.00% | 25.00% | 25.00% | 25.00% | 25.00% | ||
| Depreciation | $ 81,250 | $ 60,938 | $ 45,703 | $ 34,277 | $ 25,708 | $ 19,281 | $ 14,461 | $281,618 | |
| WDV | $ 243,750 | $ 182,813 | $ 137,109 | $ 102,832 | $ 77,124 | $ 57,843 | $ 43,382 | ||
| Calculation of after-tax salvage value | |||||||||
| Cost of machine | $ 325,000 | ||||||||
| Depreciation | $ 281,618 | ||||||||
| WDV | $ 43,382 | ||||||||
| Sale price | $ - | ||||||||
| Profit/(Loss) | $ (43,382) | ||||||||
| Tax | $ (17,353) | ||||||||
| Sale price after-tax | $ 17,353 | ||||||||
| Calculation of annual operating cash flow | |||||||||
| Year-1 | Year-2 | Year-3 | Year-4 | Year-5 | Year-6 | Year-7 | |||
| Contribution | $ 62,000 | $ 62,000 | $ 62,000 | $ 62,000 | $ 62,000 | $ 62,000 | $ 62,000 | ||
| Less: Depreciation | $ 81,250 | $ 60,938 | $ 45,703 | $ 34,277 | $ 25,708 | $ 19,281 | $ 14,461 | ||
| Profit before tax | $ (19,250) | $ 1,063 | $ 16,297 | $ 27,723 | $ 36,292 | $ 42,719 | $ 47,539 | ||
| Tax@40% | $ (7,700) | $ 425 | $ 6,519 | $ 11,089 | $ 14,517 | $ 17,088 | $ 19,016 | ||
| Profit After Tax | $ (11,550) | $ 638 | $ 9,778 | $ 16,634 | $ 21,775 | $ 25,631 | $ 28,524 | ||
| Add Depreciation | $ 81,250 | $ 60,938 | $ 45,703 | $ 34,277 | $ 25,708 | $ 19,281 | $ 14,461 | ||
| Cash Profit after-tax | $ 69,700 | $ 61,575 | $ 55,481 | $ 50,911 | $ 47,483 | $ 44,912 | $ 42,984 | ||
| Calculation of NPV | |||||||||
| 12.00% | |||||||||
| Year | Capital | Operating cash | Annual Cash flow | PV factor | Present values | ||||
| 0 | $ (325,000) | $ - | $ (325,000) | 1.0000 | $ (325,000) | ||||
| 1 | $ 69,700 | $ 69,700 | 0.8929 | $ 62,232 | |||||
| 2 | $ 61,575 | $ 61,575 | 0.7972 | $ 49,087 | |||||
| 3 | $ 55,481 | $ 55,481 | 0.7118 | $ 39,490 | |||||
| 4 | $ 50,911 | $ 50,911 | 0.6355 | $ 32,355 | |||||
| 5 | $ 47,483 | $ 47,483 | 0.5674 | $ 26,943 | |||||
| 6 | $ 44,912 | $ 44,912 | 0.5066 | $ 22,754 | |||||
| 7 | $ 17,353 | $ 42,984 | $ 60,337 | 0.4523 | $ 27,293 | ||||
| Net Present Value | $ (64,845) | ||||||||
| Since NPV isnegative, it is not suggested to purchase the helicopter. | |||||||||
Add Answer to:
QUESTION #6 Capital Budgeting D etop Kanches, Inc. is considering the purchase of a new helicopter...
3. Capital Budgeting. (15 points) Ephemeral Industries is considering a new capital budgeting project that will...
3. Capital Budgeting. (15 points) Ephemeral Industries is considering a new capital budgeting project that will last for three years. Ephemeral plans on using a cost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following information. The project is expected to produce $170,000 in new sales for the 3 operating years. Cost of Goods sold is 50% of revenues. The project entails the purchase of a capital asset for $90,000 that will...
3. Capital Budgeting. (15 points) Ephemeral Industries is considering a new capital budgeting project that will...
3. Capital Budgeting. (15 points) Ephemeral Industries is considering a new capital budgeting project that will last for three years. Ephemeral plans on using a cost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following information. The project is expected to produce $170,000 in new sales for the 3 operating years. Cost of Goods sold is 50% of revenues. The project entails the purchase of a capital asset for $90,000 that will...
ABC is considering the purchase of a new computer system for the social marketing department. The...
ABC is considering the purchase of a new computer system for the social marketing department. The system costs $375,000 and has an expected life of five years, salvage value of $15,000, and networking capital of $50,000. The manager estimates the following savings will result if the system is purchased: (10 points) Year or Period Savings 1 $1000,000 2 125,000 3 130,000 4 85,000 5 125,000 If ABC uses a 10% discount rate for capital-budgeting decisions, the net present value of...
Principal Components is considering whether to lease or purchase some specialized equipment. The capital budgeting analysis...
Principal Components is considering whether to lease or purchase some specialized equipment. The capital budgeting analysis indicating the equipment should be secured already has not been completed. The equipment has a five-year economic and tax life, and the company uses a straight-line depreciation method. The equipment costs $1,000,000 if purchased or it can be leased for five-years at $280,000 per year. The first lease payment is payable in advance. The equipment’s salvage value is estimated to be $100,000. Revenue is...
Manchester Corporation is considering the purchase of a new boiler for $350,000. The firm's old boiler...
Manchester Corporation is considering the purchase of a new boiler for $350,000. The firm's old boiler has a book value of $85,000, but has a current market value of $60,000. It is being depreciated on a straight-line basis at the rate of $21,250 per year (and, as result, will be fully depreciated in 4 years). Its salvage value is expected to be $20,000 at the end of 5 years. The new boiler will require modifications costing $15,000. The new boiler...
Your company is considering a project which will require the purchase of $785,000 in new equipment....
Your company is considering a project which will require the purchase of $785,000 in new equipment. The company expects to sell the equipment at the end of the project for 25% of its original cost, but some assets will remain in the CCA class. Annual sales from this project are estimated at $284,000. Initial net working capital equal to 35.50% of sales will be required. All of the net working capital will be recovered at the end of the project....
Apple Inc.: Capital Budgeting Analysis Apple Inc. (ticker: AAPL) is considering installing a new and highly...
Apple Inc.: Capital Budgeting Analysis Apple Inc. (ticker: AAPL) is considering installing a new and highly sophisticated computer system in one of its manufacturing facilities, which would cost $71.0 million. Delivery and installation would add another $1.2 million to the initial cost. The new computer system has a 5-year class life under MACRS. Because of the half-year convention, it will take six years for Apple to fully depreciate the cost of the system (MACRS percentages: 20, 32, 19, 12, 11...
A firm is considering the acquisition of a new machine. The base price Is $85,000 and...
A firm is considering the acquisition of a new machine. The base price Is $85,000 and it would cost $15,000 to install. The machine is MACRS 3 year class property and it will be sold after 3 years for $17,000. The machine would also require an increase in net working capital of $10,000. The machine is expected to increase before tax revenues by $40,000 per year. This firm is in a 34 % marginal tax bracket. MACRS 3 year factors...
eEgg is considering the purchase of a new distributed network computer system to help handle its...
eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $56,000 to purchase and install and $31,500 to operate each year. The system is estimated to be useful for 4 years. Management expects the new system to reduce the cost of managing inventories by $60,000 per year. The firm's cost of capital (discount rate) is 9%. Required: 1. What is the net present value (NPV) of the proposed investment...
Taylor Company is considering the purchase of a new machine. The machine will cost $247,000 and...
Taylor Company is considering the purchase of a new machine. The machine will cost $247,000 and is expected to last for 9 years. However, the machine will need maintenance costing $7,000 at the end of year four and maintenance costing $30,000 at the end of year eight. In addition, purchasing this machine would require an immediate investment of $50,000 in working capital which would be released for investment elsewhere at the end of the 9 years. The machine is expected...
3. Capital Budgeting. (15 points) Ephemeral Industries is considering a new capital budgeting project that will last for three years. Ephemeral plans on using a cost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following information. The project is expected to produce $170,000 in new sales for the 3 operating years. Cost of Goods sold is 50% of revenues. The project entails the purchase of a capital asset for $90,000 that will...
Apple Inc.: Capital Budgeting Analysis Apple Inc. (ticker: AAPL) is considering installing a new and highly sophisticated computer system in one of its manufacturing facilities, which would cost $71.0 million. Delivery and installation would add another $1.2 million to the initial cost. The new computer system has a 5-year class life under MACRS. Because of the half-year convention, it will take six years for Apple to fully depreciate the cost of the system (MACRS percentages: 20, 32, 19, 12, 11...
A firm is considering the acquisition of a new machine. The base price Is $85,000 and it would cost $15,000 to install. The machine is MACRS 3 year class property and it will be sold after 3 years for $17,000. The machine would also require an increase in net working capital of $10,000. The machine is expected to increase before tax revenues by $40,000 per year. This firm is in a 34 % marginal tax bracket. MACRS 3 year factors...
eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $56,000 to purchase and install and $31,500 to operate each year. The system is estimated to be useful for 4 years. Management expects the new system to reduce the cost of managing inventories by $60,000 per year. The firm's cost of capital (discount rate) is 9%. Required: 1. What is the net present value (NPV) of the proposed investment...
Most questions answered within 3 hours.
-
Write the net ionic equation for the precipitation reaction that
occurs when aqueous solutions of potassium...
asked 5 minutes ago -
it
should be written in c++
Your program should take numbers from the user until the...
asked 11 minutes ago -
Buses are powered by chemical reactions. Define matter and the
four states of matter. What is...
asked 29 minutes ago -
Use conservation of energy to find the velocity of a free point
charge q1 at 22cm...
asked 36 minutes ago -
First, describe policies promoted by governments of the
political right to address economic globalization. Second, describe...
asked 53 minutes ago -
M2-9 Completing T-Accounts LO2-4
Following are the transactions of Dennen, Inc., for the month of
January....
asked 53 minutes ago -
Write a program using python that reads from values from a text
file and plots them...
asked 54 minutes ago -
Look up the density of
the metal of the object used in parts A and B...
asked 54 minutes ago -
Discuss strategic considerations that Amazon and NYC politicians
had. Analyze why the deal between Amazon and...
asked 57 minutes ago -
A combustion reaction is describes as a carbon source reacting
with oxygen and producing carbon dioxide...
asked 1 hour ago -
Buckminsterfullerence is a recently allotrope of carbon in which
carbon atoms form molecules of formula C_60,...
asked 1 hour ago -
Lower Equitorial and Upper Equitorial are the same except Lower
Equitorial has a larger capital stock....
asked 1 hour ago