Question

The
Springdale Corporation plans to purchase a demolition and wrecking
machine to save labor costs. The machine costs $60,000 and has a
salvage value of $10,000 at the end of 5 years. The machine is
expected to be in operation for 5 years, and it will be depreciated
by the straight line method up to the salvage value. The
corporation specifies an after-tax MARR including inflation of 10%
and has an income tax rate of 34%. The annual inflation rate is
expected to be 5% during the next 5 years. If the uniform annual
net benefit before tax in terms of base-year dollars for the next 5
years is $20,000, is the new investment worthwhile?

Answer #1

NPV calculation:

Since NPV of the investment is positive, the investment can be made.

Machine A lasts 5 years and Machine B lasts 10 years. Machine A
costs $6,000 and Machine B costs $9,000. The salvage value of
Machine A is $4,000 and the salvage value of Machine B is $2,200.
Annual operation and maintenance costs are $5,000 for Machine A and
$3,900 for Machine B. Both machines can be purchased in the future
at the same price as today, and their salvage values and annual
costs will remain as they are now. Your...

Kemp Copy Co. is considering to purchase a new high speed copy
machine. The machine costs $500,000 and can be depreciated to zero
on a straight-line basis over its life of 5 years. Thus, annual
depreciation will be $100,000. The machine is expected to have
salvage value of $10,000. Revenues are expected to be $450,000 per
year (in real terms), and operating expenses are estimated 60
percent of revenues. Operating cash flows are expected to rise with
inflation, forecasted at...

W Corporation is considering buying a machine that costs
$540,000. The machine will be depreciated over 5 years by the
straight-line method and will have zero salvage value. The company
can also lease the machine with year-end payments of $145,000. The
company can issue bonds at 9% interest rate. If the corporate tax
rate is 35%, should the company buy or lease? Explain.

VYS Inc will purchase a new machine that costs $30,000 and is
expected to last 12 years with a salvage value of $3,000. Annual
operating expenses for first year is $9,000 and increase by $200
each year thereafter. Annual income is expected to be $12,000 per
year. If VYS’s MARR is 10%, determine the NFW of the machine
purchase.

Equipment:
The project involves the
purchase of a new machine. The machine costs $500,000 is
depreciable over 5 years. The machine requires a new building which
would cost another $250,000 (we assume that the construction of the
building takes place at t=0). The building is also depreciable over
5 years. The building will occupy a field bought 2 years ago for
$200,000. The best other use for the field is as a parking lot for
employees. The post-tax present value...

"You plan to operate the same type of machine for 10 years.
Machine A lasts 5 years and Machine B lasts 10 years. Machine A
costs $7,000 and Machine B costs $9,000. The salvage value of
Machine A is $3,000 and the salvage value of Machine B is $1,600.
Annual operation and maintenance costs are $2,000 for Machine A and
$2,400 for Machine B. Both machines can be purchased in the future
at the same price as today, and their...

Suppose a machine costs $500,000 and requires $75,000 in pre-tax
annual operating costs. The machine will be fully depreciated on a
straight-line basis over its useful life of 10 years, a#er which it
will have zero salvage value. If the required return is 12% and the
tax rate is 22%, then what is the equivalent annual cost of the
machine?
A)$146,992.08
B) $135,992.08
C) $152,492.08
D) $88,492.08
E) $40,992.08

A machine costs $260,000 to purchase and will provide $60,000 a
year in benefits. The company plans to use the machine for 12 years
and then will sell the machine for scrap, receiving $15,000. The
company interest rate is 9%. What is the present value of buying
the machine, receiving annual benefits, and then selling the
machine??

"A corporation is considering purchasing a vertical drill
machine. The machine will cost $68,000 and will have a 2-year
service life. The selling price of the machine at the end of 2
years is expected to be $33,000 in today's dollars. The machine
will generate annual revenues of $57,000 (today's dollars), but the
company expects to have annual expenses (excluding depreciation) of
$6400 (today's dollars). The asset is classified as a 7-year MACRS
property. The tax rate for the firm...

"A corporation is considering purchasing a vertical drill
machine. The machine will cost $73,000 and will have a 2-year
service life. The selling price of the machine at the end of 2
years is expected to be $41,000 in today's dollars. The machine
will generate annual revenues of $62,000 (today's dollars), but the
company expects to have annual expenses (excluding depreciation) of
$7900 (today's dollars). The asset is classified as a 7-year MACRS
property. The tax rate for the firm...

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