1. Certain new machinery, when placed in service, is estimated to cost $180,000. It is expected to reduce net annual operating expenses by $36,000 per year for 10 years and to have a $30,000 MV at the end of the 10th year. Assume that the firm is in the federal taxable income bracket of $335,000 to $10,000,000 and that the state income tax rate is 6%. State income taxes are deductible from federal taxable income. Suppose the machinery had been classified in the 10-year MACRS (GDS) property class. Calculate the new after-tax PW and after-tax IRR. (show the complete cash-flow diagram.)
Net After Tax Cash Flow
Year | Additional cash inflow | Tax on additional inflow | Net Flow |
1 | 36,000 | 2,160 | 33,840 |
2 | 36,000 | 2,160 | 33,840 |
3 | 36,000 | 2,160 | 33,840 |
4 | 36,000 | 2,160 | 33,840 |
5 | 36,000 | 2,160 | 33,840 |
6 | 36,000 | 2,160 | 33,840 |
7 | 36,000 | 2,160 | 33,840 |
8 | 36,000 | 2,160 | 33,840 |
9 | 36,000 | 2,160 | 33,840 |
10 | 36,000 | 2,160 | 33,840 |
sum | 3,60,000 | 21,600 | 3,38,400 |
Add: MV at the end of the 10th year | 30,000 |
Total Inflow | 3,68,400 |
Less: Initial Outflow | 1,80,000 |
Net Total Inflow | 1,88,400 |
Calculation of IRR
= Net Total Inflow / Initial outflow *100
=188400/180000
= 104.667%
1. Certain new machinery, when placed in service, is estimated to cost $180,000. It is expected...
Objective This activity has the purpose of helping students use the Microsoft Excel software to compute the after tax cash flow and perform a sensitivity analysis. (Objective 3) Student Instructions Read example 7-15 to be used to compute the after tax present worth. Retrieved from textbook example 7-15 Computing After Tax Present Worth of and Asset (Sullivan W., Wicks E., and Patrick C.), page 341 Certain new machinery when placed in service is estimated to cost $180,000. It is expected...
.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 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...
6) (28 points) A company is considering a replacement for an aging machine that has been fully depreciated for tax purposes. The new machine will have an initial cost of $400,000 and is expected to generate an income of $125,000 per year. Its estimated salvage value at the end of its useful life of 4 years will be $60,000. The new machine is a MACRS-GDS 3-year property for calculating depreciation deductions. The effective tax rate is 35%. a) (20 points)...
6) (28 points) A company is considering a replacement for an aging machine that has been fully depreciated for tax purposes. The new machine will have an initial cost of $400,000 and is expected to generate an income of $125,000 per year. Its estimated salvage value at the end of its useful life of 4 years will be $60,000. The new machine is a MACRS-GDS 3-year property for calculating depreciation deductions. The effective tax rate is 35%. a) (20 points)...
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need this solved step by by step please by hand. Please no Excel.
Thank You!
6) (28 points) A company is considering a replacement for an aging machine that has been fully depreciated for tax purposes. The new machine will have an initial cost of $400,000 and is expected to generate an income of $125,000 per year. Its estimated salvage value at the end of its useful life of 4 years will be $60,000. The new machine is a...
Ashley runs a small business that makes snow skis. She expects
the business to grow substantially over the next three years.
Because she is concerned about product liability and is planning to
take the company public in year 2, she currently is considering
incorporating the business. Pertinent financial data are as
follows:
Year 1
Year 2
Year 3
Sales revenue
$150,000
$320,000
$600,000
Tax-free interest income
5,000
8,000
15,000
Deductible cash expenses
30,000
58,000
95,000
Tax depreciation
25,000
20,000
40,000...
Problem 1-10 (LO. 4, 5)
Ashley runs a small business in Boulder, Colorado, that makes
snow skis. She expects the business to grow substantially over the
next three years. Because she is concerned about product liability
and is planning to take the company public in year 2, she currently
is considering incorporating the business. Pertinent financial data
are as follows:
Year 1
Year 2
Year 3
Sales revenue
$150,000
$320,000
$600,000
Tax-free interest income
5,000
8,000
15,000
Deductible cash expenses...
7) (35 points) EmKay, Inc. is considering the purchase of new automated equipment to increase its production capacity. For this purchase, the following data apply: Purchase price = $450,000 ($250,000 from own funds (equity) and $200,000 from a loan) Equipment Life: 4 years Depreciation: MACRS-GDS 3-year property Estimated salvage: $90,000 Effective tax rate: 35% EOY Expected O&M Costs Estimated revenue $30,000 $180,000 2 $40,000 $200,000 3 $50,000 $220,000 4 $60,000 $240,000 Conditions on loan: $200,000 borrowed at a nominal rate...
Cost of new machinery $200,000 Machinery estimated useful life 10 years Estimated salvage value $0 Straight-line depreciation Annual labor hours reduction 10,000 Annual operating costs reduction $4,000 Average hourly labor rate $5.50 Income tax rate 40% Discount rate 10% Part 1: Calculate the annual incremental income after taxes and the annual net cash flow for each year Part 2: Calculate the payback period Part 3: Calculate the rate of return on average investment Part 4: Calculate the net present value...