Question

Jinglin has been asked to evaluate a new machine costing $120,000. The old machine has a...

Jinglin has been asked to evaluate a new machine costing $120,000. The old machine has a book value of $30,000 and a market value of $50,000. Old machine will be sold and the after-tax cash flow will be used to offset the cost of the new machine. Net working capital will increase by $5,000. The firm’s tax rate is 40 percent. What is the initial cash outlay for the new machine? Also, please show how to entering numbers in financial calculator HP bII+

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Cost of new machine = $120,000

Net working capital investment = $5,000

Book value of old machine = $30,000

Market value of old machine = $50,000

Gain on sale of old machine = Market value - Book value = $50,000 - $30,000 = $20,000

Tax payable on gain on sale of old machine = $20,000 * 40% = $8,000

After tax cash flow on sale of old machine = Market value – Tax payable on gain on sale

After tax cash flow on sale of old machine = $50,000 - $8,000 = $42,000

Initial cash outlay = Cost of new machine + Net working capital investment - After tax cash flow on sale of old machine

Initial cash outlay = $120,000 + $5,000 - $42,000 = $83,000

In financial calculator this amount shall be entered as negative amount against CFj for year 0.

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
Yin estimates the market value of a machine will be $14,000 at the end of year...
Yin estimates the market value of a machine will be $14,000 at the end of year five. At that time, the book value of the machine will be $4,000. The machine originally cost $42,000 and an increase of $4,000 in NWC was invested at the start of the project. If the machine is sold in year five and the tax rate is 40 percent, what is the after tax terminal cash flow? Also, please show how to entering numbers in...
Jiayao is evaluating a new machine costing $6,000 today. The machine should save the company $3,400...
Jiayao is evaluating a new machine costing $6,000 today. The machine should save the company $3,400 (cash inflow) annually for each of the next two years. As a result of a $1400 overhaul of the machine (cash outflow) at the end of the 2nd year, a savings of $4200 (cash inflow) will be realized in year 3. All cash flows are after tax. What is the NPV of this machine if the firm’s cost of capital is 11 percent? Also,...
The Hot Air Company is contemplating the replacement of its old printing machine with a new...
The Hot Air Company is contemplating the replacement of its old printing machine with a new model costing $60,000. The old machine which originally cost $40,000 has 6 years of expected life remaining and a current book value of $30,000 versus a current market (salvage) value of 20,000.Target’s corporate tax rate is 40%. If Target sells the old machine at market value, what is the initial after tax outlay for the new printing machine? -$22,180 -$33,600 -$36,000 -$17,050 -$30,000 -$40,000
A company is considering replacing an old equipment with a new, more advanced machine. The new...
A company is considering replacing an old equipment with a new, more advanced machine. The new machine costs $100,000, will be used for 5 years, and with a salvage value of $10,000. The old machine has a current book value of $55,000, has 5 years of life remaining, an after-tax salvage value of $55,000 today and $5,000 (after-tax) after 5 years, and an annual depreciation of $10,000. The new machine is expected to increase annual sales by $30,000, and an...
QUESTION 24 A firm will replace an old machine with a book value of $22,000 with...
QUESTION 24 A firm will replace an old machine with a book value of $22,000 with a new one costing $130,000 The old machine will be sold for $30,000. Calculate the net initial cash outlay (PVO) if the tax rate is 39%. $98,476 $109,847 $103,120 $145,287 none of the above
1 A company is contemplating the replacement of its old printing machine with a new model....
1 A company is contemplating the replacement of its old printing machine with a new model. The details of this transaction are below. If the company sells the old machine at market value, what is the net after-tax outlay for the new printing machine?   Cost of the new machine = $35,000 Current book value of old machine = $8,000 Current market value of old machine = $7,000 Tax Rate = 25% a. $9,580 b. ($13,250) c. ($27,750) Note: The negative...
The Stargate Company is contemplating the replacement of its old space-time machine with a new model...
The Stargate Company is contemplating the replacement of its old space-time machine with a new model costing $420,000. The old machine, which originally cost $500,000, has 5 years of expected life remaining and a current book value of $100,000 versus a current market value of $200,000. Stargate's corporate tax rate is 40 percent. If Stargate sells the old machine at market value, what is the initial after-tax outlay for the new space-time machine?
The Olson Company plans to replace an old machine with a new one costing $85,000. The...
The Olson Company plans to replace an old machine with a new one costing $85,000. The old machine originally cost $55,000 and has six years of its expected 11-year life remaining. It has been depreciated straight-line assuming zero salvage value and has a current market value of $22,000. Olson's effective tax rate is 32%. Calculate the initial outlay associated with selling the old machine and acquiring the new one. $________ ____________________________________________________________________ A project that is expected to last six years...
You have been asked to evaluate the proposed acquisition of a new portable MRI. The system’s...
You have been asked to evaluate the proposed acquisition of a new portable MRI. The system’s price is $70,000 and it will cost another $20,000 for transportation and installation the system is expected to be sold after three years because a new stationary machine will be acquired at that time the best estimate of the system salvage value after three years is $30,000 the system will have no impact on volume or reimbursement (and hence revenues) but it is expected...
A firm is considering the purchase of a new machine. You have been asked to evaluate...
A firm is considering the purchase of a new machine. You have been asked to evaluate the following data. MARR = 10%. What is the incremental rate of return ()? (Use a starting value of 18%.) Enter your answer as a percent, rounded to two decimal places. For example, you would enter 2.34 for 2.34%. Machine 1 Machine 2 Initial Cost $65,000 $55,000 Salvage Value $5,000 $2,000 Net Annual Benefit $8,000 $6,000 Useful life (years) 30 30
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT