The Greentree Lumber Company is attempting to evaluate the profitability of adding another cutting line to...

Question

Question

The Greentree Lumber Company is attempting to evaluate the profitability of adding another cutting line to its present sawmil

business accounting

Add a comment Improve this question Transcribed image text

Answer 1

Answer #1

ANSWER:

MARR	5%
Year	0	1	2	3	4	5
Cost of land	-29000
Cost of equipment	-122000
Revenue		55000	55000	55000	55000	55000
Operating expenses		12000	12000	12000	12000	12000
Depreciation		24400 (122000*20%	39040 (122000*32%	23424 (122000*19.20%	14054.4 (122000*11.52%	7027.2 (12200011.52%1/2)
Pre tax cashflows =revenue – depreciation – operating expenses		18600	3960	19576	28945.6	35972.8
Tax rate = 49%		9114	1940.4	9592.24	14183.34	17626.67
After tax cash flows = pre tax cash flows – tax		9486	2019.6	9983.76	14762.26	18346.13
Salvage value of land		0	0	0	0	29000
Net after tax cash flows = after tax cash flows + depreciation + salvage value		33886	41059	33407.76	43707.86	54373.33
Discount rate = 1/(1+MARR)^no.of years	1	0.952	0.907	0.864	0.823	0.784
Net discounted after tax cash flows	-151000	32259.47	37648.66	28864.31	35971.57	42628.69
NPV= sum net discounted after tax cash flows +initial investment of land and equipment	26372.7

NPV is positive so we should accept the project

Add a comment

Answer 2

Similar Homework Help Questions

The Greentree Lumber Company is attempting to evaluate the profitability of adding another cutting line to...

The Greentree Lumber Company is attempting to evaluate the profitability of adding another cutting line to its present sawmill operations. They would need to purchase two more acres of land for $30,000 (total). The equipment would cost$122,000 and could be depreciated over a five-year recovery period with the MACRS method. The new equipment is expected to increase gross revenue by $51,000 per year for five years, and operating expenses will be $14,000 annually for five years. It is expected that...
The Greentree Lumber Company is attempting to evaluate the profitability of adding another cutting line to its present s...

The Greentree Lumber Company is attempting to evaluate the profitability of adding another cutting line to its present sawmill operations. They would need to purchase two more acres of land for $25,000 (total). The equipment would cost $125,000 and could be depreciated over a five-year recovery period with the MACRS method. Gross revenue is expected to be $47,000 per year for five years, and operating expenses will be $18,000 annually for five years. It is expected that this cutting line...
A construction company is considering whether to lease or buy equipment for its new 4-year projec...

please answer them all and mark the answers . thanks A construction company is considering whether to lease or buy equipment for its new 4-year project. If they buy the equipment, it will have an initial investment cost of $630,000 with annual costs of $42.000. At the end of the 4 years the equipment can be sold for an estimated $378,000. For tax purposes, the company will use MACRS-ADS depreciation on the equipment. If they decide to lease, it will...

.ATCF Analysis: (15 ptos) ACME Inc. is contemplating the purchase of a new caterpillar machine. The machine will co...

.ATCF Analysis: (15 ptos) ACME Inc. is contemplating the purchase of a new caterpillar machine. The machine will cost $180,000. Its market value at the end of five years is estimated as $40,000. The accounting department uses the MACRS GDS-3 years recovery period depreciate the equipment. The justification for this machine include $60,000 savings per year in labor and $30,000 savings per year in reduced material. Equipment life 5 years, Tax rate 40% MARR is 10%. Use this information to...
.ATCF Analysis: (15 ptos) ACME Inc. is contemplating the purchase of a new caterpillar machine. The machine will co...

.ATCF Analysis: (15 ptos) ACME Inc. is contemplating the purchase of a new caterpillar machine. The machine will cost $180,000. Its market value at the end of five years is estimated as $40,000. The accounting department uses the MACRS GDS-3 years recovery period depreciate the equipment. The justification for this machine include $60,000 savings per year in labor and $30,000 savings per year in reduced material. Equipment life 5 years, Tax rate 40% MARR is 10%. Use this information to...
Your company has just signed a three-year nonrenewable contract with the city of New Orleans for...

Your company has just signed a three-year nonrenewable contract with the city of New Orleans for earthmoving work. You are investigating the purchase of heavy construction equipment for this job. The equipment costs $201,000 and qualifies for five-year MACRS depreciation. At the end of the three-year contract, you expect to be able to sell the equipment for $80,000. If the projected operating expense for the equipment is $63,000 per year, what is the after-tax equivalent uniform annual cost (EUAC) of...

1. An injection mokding machine can be purchased and installed for $80,000 It is in the...

1. An injection mokding machine can be purchased and installed for $80,000 It is in the seven-year GDS property class and is expected to be kept in servioe for eight years. It is believed that $12,000 can be obtained when the machine is disposed of at the end of year eight. The net annual value added (i.e, revenues less expenses) that can be attributed to this machine is constant over eight years and amounts to $15,000, An effective income tax...
I am confused on how to find the ATCF's A construction company is considering whether to...

I am confused on how to find the ATCF's A construction company is considering whether to lease or buy equipment for its new 4-year project. If they buy the equipment, it will have an initial investment cost of $640,000 with annual costs of $44,000. At the end of the 4 years the equipment can be sold for an estimated $384,000. For tax purposes, the company will use MACRS-ADS depreciation on the equipment. If they decide to lease, it will cost...
A construction company is considering acquiring a new earthmover. The purchase price is $110,000, and an...

A construction company is considering acquiring a new earthmover. The purchase price is $110,000, and an additional $25,000 is required to modify the equipment for special use by the company. The equipment falls into the MACRS seven-year classification (the tax life), and it will be sold after five years (the project life) for $50,000 The purchase of the earthmover will have no effect on revenues, but the machine is expected to save the firm $68,000 per year in before-tax operating...

A global positioning system (GPS) receiver is purchased for $2,000. The IRS informs your company that...

A global positioning system (GPS) receiver is purchased for $2,000. The IRS informs your company that the useful (class) life of the system is seven years. The expected market (salvage) value is $450 at the end of year seven a. Use the straight line method to calculate depreciation in year three. b. Use the 200% declining balance method to calculate the cumulative depreciation through year four. c. Use the MACRS method to calculate the cumulative depreciation through year five. d....

The Greentree Lumber Company is attempting to evaluate the profitability of adding another cutting line to...

Homework Answers