Question

XYZ Company is considering whether a project requiring the purchase of new equipment is worth investing....

XYZ Company is considering whether a project requiring the purchase of new equipment is worth investing. The cost of a new machine is $340,000 including shipping and installation. The project will increase annual revenues by $400,000 and annual costs by $100,000. The machine will be depreciated via straight-line depreciation for three years to a salvage value of $40,000. If the firm does this project, $30,000 in net working capital will be required, which will be fully recaptured at the end of the project. The estimated salvage value of the machine after the project is $30,000. What is the terminal value of this project if the tax rate is 40%? Round to the nearest penny. Do not include a dollar sign in your answer.

Homework Answers

Answer #1

Depreciation is provided as such that Residual Value at end is $40000. So

Book Value at end of project is $40000

Salvage Value or sale Value of equipment Actual is $30000

Capital loss = 40000-30000= 10000

There will be tax benefit @40% on Capital loss. It will be a Cash inflow 10000*40% = 4000

Calculation of Terminal Value

Salvage Value ...........30000

Less: tax benefit. ......4000

Working Capital

Recovered................30000

_____________________________

Terminal Value..........64000

So Terminal Value of project is $64000

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
XYZ Company is considering whether a project requiring the purchase of new equipment is worth investing....
XYZ Company is considering whether a project requiring the purchase of new equipment is worth investing. The cost of a new machine is $340,000 including shipping and installation. The project will increase annual revenues by $400,000 and annual costs by $100,000. The machine will be depreciated via straight-line depreciation for three years to a salvage value of $40,000. If the firm does this project, $30,000 in net working capital will be required. What is the annual cash flow of this...
XYZ Company is considering whether a project requiring the purchase of new equipment is worth investing....
XYZ Company is considering whether a project requiring the purchase of new equipment is worth investing. The cost of a new machine is $340,000 including shipping and installation. The project will increase annual revenues by $400,000 and annual costs by $100,000. The machine will be depreciated via straight-line depreciation for three years to a salvage value of $40,000. If the firm does this project, $30,000 in net working capital will be required. What is the annual cash flow of this...
You are a project manager. You are estimating the cash flows of a potential project that...
You are a project manager. You are estimating the cash flows of a potential project that requires an investment of $200,000, including installation cost, and $30,000 in working capital, which will be fully recaptured at the end of the project. The machine has an estimated life of six years and will be depreciated via the simplified straight-line method. The project is expected to raise the firm’s annual revenues by $330,000 and increase annual costs by $125,000. The machine you purchase...
You are a project manager. You are estimating the cash flows of a potential project that...
You are a project manager. You are estimating the cash flows of a potential project that requires an investment of $200,000, including installation cost, and $30,000 in working capital, which will be fully recaptured at the end of the project. The machine has an estimated life of six years and will be depreciated via the simplified straight-line method. The project is expected to raise the firm’s annual revenues by $330,000 and increase annual costs by $125,000. The machine you purchase...
You are a project manager. You are estimating cash flows of a potential project that requires...
You are a project manager. You are estimating cash flows of a potential project that requires investment of $250,000 in a machine, including installation cost, and $40,000 in working capital which will be fully captures at the end of the project. The marchine has the estimated life of 5 years and will be depreciated vie simplified straight-line method. The project is expected to raise the firm's revenues by $330,000 and costs by $125,000 annually. Since the trend of the product...
You are a project manager. You are estimating cash flows of a potential project that requires...
You are a project manager. You are estimating cash flows of a potential project that requires investment of $250,000 in a machine, including installation cost, and $40,000 in working capital which will be fully captures at the end of the project. The marchine has the estimated life of 5 years and will be depreciated vie simplified straight-line method. The project is expected to raise the firm's revenues by $330,000 and costs by $125,000 annually. Since the trend of the product...
ABC, Inc. is considering a new project requiring a $270,000 initial investment in equipment having a...
ABC, Inc. is considering a new project requiring a $270,000 initial investment in equipment having a useful life of 3 years with zero expected salvage value. The investment will produce $220,000 in annual revenues and $180,000 in annual costs. Assume a tax rate of 30% and straight-line depreciation. What is the operating cash flow per year? $118,000 $67,000 $91,000 $69,000 $55,000
Weir Inc. is considering to purchase of new production machine for $100,000. although the purchase of...
Weir Inc. is considering to purchase of new production machine for $100,000. although the purchase of this machine will not produce ny increase in sales revenues , it will result in a reduction of labor costs by $31,000 per year. the shipping cost is is $7,000. in addition it would cost $3,000 to install this machine properly. also because this machine is extremely efficient its purchase would necessitate an increase in inventory of $25,000. this machine has an expected life...
The Virginia Cane Company (VCC) is considering investing in a new cane manufacturing machine that has...
The Virginia Cane Company (VCC) is considering investing in a new cane manufacturing machine that has an estimated life of 4 years. The cost of the machine is $50,000 and the machine will be depreciated straight-line over its 4-year life to a salvage value of $0. While the machine will be fully depreciated over the project’s life, management thinks the cane machine can be sold for $3,000, excluding applicable tax, at project end. In the first year, VCC expects to...
XYZ is now evaluating the purchase of a new machine for $210,000 installed with no NWC...
XYZ is now evaluating the purchase of a new machine for $210,000 installed with no NWC change. They plan to sell the machine at the end of 3 years for $30,000. MACRS 3 year depreciation. With the more efficient machine, labor savings per year are expected to be $70,000, $94,000 and $76,000 respectively. 40% tax. The cost of capital for this project is 8.%. What is the net terminal (salvage) value? What is the discounted payback for this project? What...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT