Question

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?

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

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 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 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 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 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 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 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 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 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 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

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 1 minute ago

asked 6 minutes ago

asked 8 minutes ago

asked 17 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago