Question

Crane Lumber, Inc., is considering purchasing a new wood saw
that costs $70,000. The saw will generate revenues of $100,000 per
year for five years. The cost of materials and labor needed to
generate these revenues will total $60,000 per year, and other cash
expenses will be $10,000 per year. The machine is expected to sell
for $2,100 at the end of its five-year life and will be depreciated
on a straight-line basis over five years to zero. Crane’s tax rate
is 34 percent, and its opportunity cost of capital is 15.40
percent.

What is the project's NPV? **(Do not round intermediate
calculations. Round final answer to the nearest whole dollar, e.g.
5,275.)**

Answer #1

Since we have a straight-line depreciation, the depreciation amount each year will be = 70000/5 = 14000. The first year cash flow will be = (100,000 - 70,000 - 10,000) x (1 - 0.34) = 13200. These will be the cash flows for the years 2, 3 and 4 as well. For the 5th year we will have the cash flow = (100,000 - 70,000 - 10,000 + 2,100) x (1 - 0.34) = 14586.

Hence, the NPV will be = 13200/1.154 + 13200/1.154^2 + 13200/1.154^3 + 13200/1.154^4 + 14586/1.154^5 = 44509.83

Crane Lumber, Inc., is considering purchasing a new wood saw
that costs $45,000. The saw will generate revenues of $100,000 per
year for five years. The cost of materials and labor needed to
generate these revenues will total $60,000 per year, and other cash
expenses will be $10,000 per year. The machine is expected to sell
for $1,400 at the end of its five-year life and will be depreciated
on a straight-line basis over five years to zero. Crane’s tax...

Rocky Mountain Lumber, Inc., is considering purchasing a new
wood saw that costs $65,000. The saw will generate revenues of
$100,000 per year for five years. The cost of materials and labor
needed to generate these revenues will total $60,000 per year, and
other cash expenses will be $10,000 per year. The machine is
expected to sell for $3,500 at the end of its five-year life and
will be depreciated on a straight-line basis over five years to
zero. Rocky...

Rocky Mountain Lumber, Inc., is considering purchasing a new
wood saw that costs $65,000. The saw will generate revenues of
$100,000 per year for five years. The cost of materials and labor
needed to generate these revenues will total $60,000 per year, and
other cash expenses will be $10,000 per year. The machine is
expected to sell for $4,000 at the end of its five-year life and
will be depreciated on a straight-line basis over five years to
zero. Rocky...

Steamboat Springs Furniture, Inc., is considering purchasing a
new finishing lathe that costs $58,421.00. The lathe will generate
revenues of $98,740.00 per year for five years. The cost of
materials and labor needed to generate these revenues will total
$50,013.00 per year, and other cash expenses will be $10,432.00 per
year. The machine is expected to sell for $8,674.00 at the end of
its five-year life and will be depreciated on a straight-line basis
over five years to zero. Steamboat...

Steamboat Springs Furniture, Inc., is considering purchasing a
new finishing lathe that costs $64,262.00. The lathe will generate
revenues of $96,152.00 per year for five years. The cost of
materials and labor needed to generate these revenues will total
$48,052.00 per year, and other cash expenses will be $10,462.00 per
year. The machine is expected to sell for $9,573.00 at the end of
its five-year life and will be depreciated on a straight-line basis
over five years to zero. Steamboat...

Steamboat Springs Furniture, Inc., is considering purchasing a
new finishing lathe that costs $64,262.00. The lathe will generate
revenues of $96,152.00 per year for five years. The cost of
materials and labor needed to generate these revenues will total
$48,052.00 per year, and other cash expenses will be $10,462.00 per
year. The machine is expected to sell for $9,573.00 at the end of
its five-year life and will be depreciated on a straight-line basis
over five years to zero. Steamboat...

Steamboat Springs Furniture, Inc., is considering purchasing a
new finishing lathe that costs $61,793.00. The lathe will generate
revenues of $99,910.00 per year for five years. The cost of
materials and labor needed to generate these revenues will total
$48,957.00 per year, and other cash expenses will be $10,944.00 per
year. The machine is expected to sell for $8,130.00 at the end of
its five-year life and will be depreciated on a straight-line basis
over five years to zero. Steamboat...

Steamboat Springs Furniture, Inc., is considering purchasing a
new finishing lathe that costs $61,475.00. The lathe will generate
revenues of $99,653.00 per year for five years. The cost of
materials and labor needed to generate these revenues will total
$50,876.00 per year, and other cash expenses will be $11,734.00 per
year. The machine is expected to sell for $8,467.00 at the end of
its five-year life and will be depreciated on a straight-line basis
over five years to zero. Steamboat...

Orange Ltd. is considering purchasing a new manufacturing plant
that costs $500,000. The manufacturing plant will generate revenues
of $150,000 per year for ten years. The operating costs needed to
generate these revenues will total $75,000 per year. The
manufacturing plant will be depreciated on a straight-line basis
over ten years to zero. Orange Ltd.’s tax rate is 30 percent, and
its cost of capital is 10 percent.
(a) What is the net present value of this
project?
(b) Should...

Builtrite is considering purchasing a new machine that would
cost $60,000 and the machine would be depreciated (straight line)
down to $0 over its five year life. At the end of five years it is
believed that the machine could be sold for $15,000. The current
machine being used was purchased 3 years ago at a cost of $40,000
and it is being depreciated down to zero over its 5 year life. The
current machine's salvage value now is $10,000....

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 44 seconds ago

asked 7 minutes ago

asked 11 minutes ago

asked 12 minutes ago

asked 12 minutes ago

asked 12 minutes ago

asked 29 minutes ago

asked 33 minutes ago

asked 39 minutes ago

asked 40 minutes ago

asked 40 minutes ago

asked 48 minutes ago