Lord of the Rings Corporation is considering purchasing a new state of the art microprocessor machine for its manufacturing division, the X-80, to replace their old machine “MISTY”, model G-40 (model G-40 will be sold for $15,000). Both machines have the same capacity to produce and package microprocessors for customer delivery, and both have the same remaining life of 10 years from today. The company's tax rate is 40%.
G-40 X-80
Cost $100,000 $180,000
Accumulated depreciation 60,000 0
Salvage value in 10 years 0 0
Yearly cash operating costs 50,000 30,000
Yearly cash revenues 270,000 270,000
Yearly depreciation expense 4,000 18,000
X-80.
Lord of the Rings Corporation is considering purchasing a new state of the art microprocessor machine...
Marshall-Miller & Company is considering the purchase of a new machine for $50,000, installed. The machine has a tax life of 5 years. Under the new tax law, the machine is eligible for 100% bonus depreciation, so it will be fully depreciated at t= 0. The firm expects to operate the machine for 4 years and then to sell it for $21,500. If the marginal tax rate is 25%, what will the after-tax salvage value be when the machine is...
Bailey Corporation is considering modernizing its production by purchasing a new machine and selling an old machine. The following data have been collected on this investment: Testbank Question 57 Bailey Corporation is considering modernizing its production by purchasing a new machine and selling an old machine. The following data have been collected on this investment: Old Machine Cost Accumulated amortization Remaining life Current salvage value Salvage value in 4 years Annual cash operating costs $40,000 $20,000 4 years $5,000 New...
Testbank Question 55 Bailey Corporation is considering modernizing its production by purchasing a new machine and selling an old machine. The following data have been collected on this investment: New Machine Old Machine Cost Accumulated amortization Remaining life Current salvage value Salvage value in 4 years Annual cash operating costs $40,000 $20,000 4 years $5,000 $0 $18,000 Cost Estimated useful life Salvage value in 4 years Annual cash operating costs $19,000 4 years $5,000 $14,000 The income tax rate is...
question 7 a company is considering purchasing new equipment the equipment will allow the company to expand into a new product line. the equipment will be installed in the company existing facility which of the following cash flows would not be relevant to the decision to acquire the new equipment ? 1- annual maintenance cost on the new equipment 2-the salary of the manager hired to oversee the new product line 3-revenues from expanded production 4-labour costs to operate the...
You must evaluate a proposal to buy a new milling machine. The base price is $108,000, and shipping and installation costs would add another $12,500. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $65,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The machine would require a $5,500 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax...
Yoder Technologies is considering expanding its production capacity by purchasing a new machine, the TB-2000. The cost of the TB-2000 is $3 million. Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a $50,000 feasibility study to analyze the decision to buy the TB-2000, resulting in the following estimates: • Marketing: Once the TB-2000 is operating next year, the extra capacity is expected to allow for $12 million per year in...
Yoder Technologies is considering expanding its production capacity by purchasing a new machine, the TB-2000. The cost of the TB-2000 is $3 million. Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a $50,000 feasibility study to analyze the decision to buy the TB-2000, resulting in the following estimates: • Marketing: Once the TB-2000 is operating next year, the extra capacity is expected to allow for $12 million per year in...
Operating cash inflows Strong Tool Company has been considering purchasing a new lathe to replace a fully depreciated lathe that would otherwise last 5 more years. The new lathe is expected to have a 5-year life and depreciation charges of $2,040 in Year 1; $3,264 in Year 2; $1,938 in Year 3; $1,224 in both Year 4 and Year 5, and $510 in Year 6. The firm estimates the revenues and expenses (excluding depreciation and interest) for the new and...
Problem 2 Apache's real estate department is considering buying a hangar and leasing it out to private jet operators. They ask you to calculate the NPV and IRR of the investment and have given you the data below. Assume that the hangar is sold in year 25 and that the mortgage runs 25 years. 5.0% Square footage 1,910 Property price ($) 1,015,000 Down payment 10.0% Interest rate 3.9% Closing costs at start 8,000 Broker fee in year 25 Yearly property...
Sullivan-Swift Mining Company must install $1.4 million of new machinery in its Nevada mine. It can obtain a bank loan for 100% of the required amount. Alternatively, a Nevada investment banking firm that represents a group of investors believes that it can arrange for a lease financing plan. Assume that the following facts apply: 1. The equipment falls in the MACRS 3-year class. The applicable MACRS rates are 33%, 45%, 15%, and 7%. 2. Estimated maintenance expenses are $65,000 per...