Question

1. A firm has a general-purpose machine, which has a book value of $400,000 and can be sold for $600,000 in the market. If the tax rate is 30%, what is the opportunity cost of using the machine in a project considering the tax issues?

Group of answer choices

$600,000

$540,000

$400,000

None of the above

2.

A common stock will pay a dividend of $7 next year. After that,
the dividends are expected to increase indefinitely at 6% per year.
If the discount rate is 14% what is the present value of the stream
of dividend payments? Hint-just focus on what is going on with the
cash flow here (dividend). Show your work. The answer is closest to
(rounded to two decimal places):

Group of answer choices

66.67

60.14

87.50

100.00

Answer #1

**Question
1:**

Sale Value = $600,000

Book Value = $400,000

Tax rate = 30%

Tax on sale = (Sale Value - Book Value) * Tax rate

= ($600,000 - $400,000) * 30%

= $60,000

After tax sale value = Sale Value - Tax on sale

= $600,000 - $60,000

= $540,000

Opportunity cost of using the machine in project considering the tax issues is $540,000

**Question
2:**

D1 = Expected Dividend = $7

g = Growth rate = 6%

r = Discount rate = 14%

Present Value of stream of Dividend payments = D1 / (r - g)

= $7 / (14% - 6%)

= $7 / 0.08

= $87.5

Therefore, Present Value of stream of dividend payments is $87.50

A firm will purchase a $400,000 machine to replace an aging
machine with a book value of $19,000. The old machine can be sold
for $26,000. The new machine will have to be installed at a cost of
$1,800. If the tax rate is 36%, determine the NICO.
$378,320
$176,900
$294,921
$402,520
none of the above

On January 1, 2017, Beard Company purchased a machine for
$800,000. The machine is expected to have a 10-year life and no
residual value. On January 1, 2017, it leased the machine to Ajax
Company for a three-year period at an annual rental of $200,000 to
be paid at the end of each year. The lease has an implicit interest
rate of 8%. Ajax has adopted early the provisions of ASC 842 on
January 1, 2017
1-What's the initial value...

Tallman Company traded machinery with a book value of $600,000
and a fair value of $1,000,000. It received in exchange from Lewis
Company a machine with a fair value of $900,000 and cash of
$100,000. Lewis’s machine has a book value of $950,000. What amount
of gain should Tallman recognize on the exchange (assuming lack of
commercial substance)?
Group of answer choices
$40,000
$400,000
$ -0-
None of the other answers are correct
$100,000

The value of a machine was $400,000 when purchased new one year
ago. It has an expected life of five years and the income statement
shows the straight line depreciation rate as 20%.
Using double declining balance depreciation, what is the
value of the machine at the end of year two?

The value of a machine was $400,000 when purchased new one year
ago. It has an expected life of five years and the income statement
shows the straight line depreciation rate as 20%.
Using double declining balance depreciation, what is the
value of the machine at the end of year two?
$96,000
$240,000
$160,000
$144,000

Krauth Company purchased a machine for $162,600. The machine has
a life
of twelve years with no salvage value. It is expected that the
machine will
generate annual net cash inflows of $30,000 per year over its
useful life.
Assume Krauth Company employs a cost of capital of 10% on all
capital
investment projects.
The internal rate of return (IRR) on the
machine is closest to:
Group of answer choices
9%
10%
12%
14%
15%
16%

Mays Company has a machine with a cost of $750,000 which also is
its fair value on the date the machine is leased to Park
Company.
The lease is for 6 years and the machine is estimated to have an
unguaranteed residual value of $75,000.
If the lessor’s interest rate implicit in the lease is 12%, the
six beginning-of-the-year lease payments would be:
Group of answer choices
$154,623.
$125,000.
$146,587.
$162,874.

Pique Corporation wants to purchase a new machine for $300,000.
Management predicts that the machine can produce sales of $200,000
each year for the next 5 years. Expenses are expected to include
direct materials, direct labor, and factory overhead (excluding
depreciation) totaling $80,000 per year. The firm uses
straight-line depreciation with no residual value for all
depreciable assets. Pique's tax rate is 40%. Management requires a
minimum rate of return of 10% on all investments.
What is the annual after...

A product is being manufactured on a machine that has a
book value of $10,000 (20 years ago it was purchased for $50,000).
The costs of the product are as follows:
Item
Unit Costs
Labor, direct
4.00
Labor, variable indirect
5.00
Other variable overhead
2.50
Fixed overhead
2.50
Total
14.00
In the past year 10,000 units were produced and sold for
$10 per unit. It is expected that the old machine can be used
indefinitely in the future and that...

The General Metal Co. is a new firm in a rapidly growing
industry. The company is planning on increasing its annual dividend
by 20% a year for the next four years and then increasing its
dividend by 5% a year. The company just paid its annual dividend in
the amount of $1.00 per share. What is the current value of one
share if the required rate of return is 9.25%?
Group of answer choices
$35.63
$38.19
$41.05
$43.19
$45.8

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