Question

You are calculating the SV at Time 10 for a replacement project. The new machine will...

You are calculating the SV at Time 10 for a replacement project. The new machine will be depreciated using MACRS for a 5-year asset class, and its expected salvage value at Time 10 is $8,000. The old machine is being depreciated on a straight-line basis to an expected salvage value at Time 10 of $2,000. Net working capital investments totaling $1,000 were made over the life of the project. Additional tax-deductible shutdown expenses of $500 are necessary at Time 10. If the tax rate is 30%, what is the value of SV at Time 10?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

After tax sale value of old machine = Sale value - [(Sale value - book value)* tax rate]

= $2,000 - [($2,000 - $2,000)*30%]

= $2,000

After tax sale value of New Machine = Sale value - [(Sale value - book value)* tax rate]

= $8,000 - [($8,000 - $0) * 30%]

= $8,000 - $2,400

= $5,600

Net Working Capital Recoverd = $1,000

After tax Shutdown expenses = $500 * (1-30%) = $350

Salvage Value at time 10 = Sale Value of New Machine + Net Working Capital Recovered - Sale Value of Old Machine - After tax Shutdown expenses

= $5,600 + $1,000 - $2,000 - $350

= $4,250

Therefore, Salvage Value at time 10 is $4,250

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Taylor Toy Corp. is considering the replacement of it injection molding machine. It is 2 years...
Taylor Toy Corp. is considering the replacement of it injection molding machine. It is 2 years old but new technology has it considering the newest model. The old (current) machine was acquired 2 years ago and is being depreciated on a straight line basis over 8 years (6 years remaining).The annual depreciation expense is $350 per year, and its current book value is $2,100. It can be sold for $2,500 today. If the machine is not replaced, it is expected...
Problem 10-8 Calculating Salvage Value [LO1] An asset used in a four-year project falls in the...
Problem 10-8 Calculating Salvage Value [LO1] An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $5,000,000 and will be sold for $1,500,000 at the end of the project. If the tax rate is 24 percent, what is the aftertax salvage value of the asset? Refer to Table 10.7. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) Aftertax...
REPLACEMENT ANALYSIS St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with...
REPLACEMENT ANALYSIS St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings before depreciation from $27,000 to $52,000 per year. The new machine will cost $82,500, and it will have an estimated life of 8 years and no salvage value. The new machine will be depreciated over its 5-year MACRS recovery period, so the applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. The applicable corporate tax...
St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a new...
St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings before depreciation from $30,000 to $52,000 per year. The new machine will cost $87,500, and it will have an estimated life of 8 years and no salvage value. The new machine will be depreciated over its 5-year MACRS recovery period, so the applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. The applicable corporate tax rate is...
A firm is considering a replacement project which requires the initial outlay of $300,000 which includes...
A firm is considering a replacement project which requires the initial outlay of $300,000 which includes both an after-tax salvage from the old asset of $12,000 and an additional working capital investment of $8,000. The 12-year project is expected to generate annual incremental cash flows of $54,000 and have an expected terminal value at the end of the project of $20,000. The cost of capital is 15 percent, and its marginal tax rate is 40 percent. Calculate the net present...
You are evaluating a capital budgeting replacement project with a net investment of $85,000, which includes...
You are evaluating a capital budgeting replacement project with a net investment of $85,000, which includes both an after-tax salvage from the old asset of $5,000 and an additional working capital investment of $10,000. The expected annual incremental cash flows after-tax is $14,000. The project has a life of 9 years with an expected terminal value at the end of the project of $13,000. The cost of capital of the firm is 10 percent and the firm’s marginal tax rate...
St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a new...
St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings before depreciation from $30,000 to $48,000 per year. The new machine will cost $87,500, and it will have an estimated life of 8 years and no salvage value. The new riveting machine is eligible for 100% bonus depreciation at the time of purchase. The applicable corporate tax rate is 25%, and the firm's WACC is 10%. The old machine...
St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a new...
St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings before depreciation from $30,000 to $56,000 per year. The new machine will cost $90,000, and it will have an estimated life of 8 years and no salvage value. The new riveting machine is eligible for 100% bonus depreciation at the time of purchase. The applicable corporate tax rate is 25%, and the firm's WACC is 10%. The old machine...
16 A firm is considering a replacement project which requires the initial outlay of $300,000 w-hich...
16 A firm is considering a replacement project which requires the initial outlay of $300,000 w-hich includes both an after-tax salvage from the old asset of $12,000 and an additional working capital investment of $8,000. The 12-year project is expected to generate annual incremental cash flows of $54,000 and have an expected terminal value at the end of the project of $20,000. The cost of capital is 15 percent, and its marginal tax rate is 40 percent. Calculate the net...
St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a new...
St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings before depreciation from $24,000 to $54,000 per year. The new machine will cost $90,000, and it will have an estimated life of 8 years and no salvage value. The new riveting machine is eligible for 100% bonus depreciation at the time of purchase. The applicable corporate tax rate is 25%, and the firm's WACC is 20%. The old machine...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT