Question

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 Springs' marginal tax rate is 38.00 percent, and its cost of capital is 12.00 percent. What is the project cash flow for the first year of the project?

Answer #1

Expenses = cost of materials and labor + other cash expenses

Tax = Tax rate*Profit

Depreciaiton Tax savings= Tax rate*Depreciation

Investment | 64262 |

Life of investment | 5 |

Annual Depreciation | 12852.4 |

Annual Sale | 96152 |

Expenses | 58514 |

Profit | 37,638 |

Tax rate | 38% |

Tax | 14,302.44 |

Depreciaiton Tax savings | -4,883.91 |

Net tax payable | 9,418.53 |

Cash flows for year
1 |
28,219.47 |

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 $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 $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...

Snowy Mountain Timber Ltd is considering purchasing a new wood
saw that costs $55,000. The saw will generate revenues of $100,000
per year for five years. The cost of materials and labour 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 $3,000 at the end of its five-year life and will be depreciated
on a straight-line basis over five years to zero. Snowy...

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...

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...

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...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 31 minutes ago

asked 50 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 3 hours ago

asked 3 hours ago

asked 3 hours ago

asked 4 hours ago

asked 4 hours ago