Question

VML Industries needs specialized manufacturing equipment for finished plastic products to operate over the next 5years.VML industries can use a 60% bonus depreciation in year 0 combined with MACRS depreciation schedule for tax estimation on this equipment. Three brands offer the required equipment. (1) Brand 1’s purchase cost is $14K, with annual maintenance of $2.5K, and salvage value of $5K after 5 years. (2) Brand 2 sells the equipment at $18Kwith annual maintenance of $1K, and salvage value of $10K after 5 years. (3) Brand 3 sells the equipment at $12.5K with annual maintenance of $5K. VML predicts a $0 salvage value from Brand3’s equipment after 5 years, so Brand3 offers a 20% discount on the purchase price to VML (the discount does not apply to the annual maintenance).The after-tax MARR for VML Industries is 25%. The Federal tax rate is 21% and the State tax rate is 12.66%.

**Question 1.** Conduct an incremental IRR analysis
on the after-tax cash flows of the three alternatives and answer:
which brand would you recommend to VML?

Answer #1

25% | 0 | 1 | 2 | 3 | 4 | 5 | ||

Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Total | ||

Brand 1 | Purchase cost | -14 | ||||||

AMC | -2.5 | -2.5 | -2.5 | -2.5 | -2.5 | |||

Salvage | 5 | |||||||

NPV | -14 | -2 | -1.6 | -1.28 | -1.024 | 0.8192 | -19.0848 | |

Brand 2 | Purchase cost | -18 | ||||||

AMC | -1 | -1 | -1 | -1 | -1 | |||

Salvage | 10 | |||||||

NPV | -18 | -0.8 | -0.64 | -0.512 | -0.4096 | 2.94912 | -17.4125 | |

Brand 3 | Purchase cost | -10 | ||||||

AMC | -5 | -5 | -5 | -5 | -5 | |||

Salvage | 0 | |||||||

NPV | -10 | -4 | -3.2 | -2.56 | -2.048 | -1.6384 | -23.4464 |

Based on the excel attached above -

For Brand 2 we have lowest NPV cost. So it is recommended to purchase the Brand 2.

A.You just purchased some equipment for $100,000.
If the salvage value is $20,000, and you decide to depreciate
it straight-line in 5 years, what’s the annual depreciation? and
what’s the book value after 5 years?
If you decide to depreciate with 5-year MACRS schedule, what’s
the annual depreciation, and what’s the book value after 5
years?
If you decide to depreciate with 7-year MACRS schedule, what’s
the annual depreciation for the first 5 years, and what’s the book
value after...

Engineering Economic Analysis Question:
A company purchased production equipment that cost $120,000.
They used sum-ofyears’-digits depreciation with an estimate 5-year
life and estimate salvage value of $0.
The company’s total tax rate is 34%. After 5 years, the
equipment was sold for $40,000. It had reduced operating costs by
$32,000 a year, before taxes.
Perform an after-tax net present worth analysis to determine if
the purchase was satisfactory, assuming an MARR of 12%.

A construction company is considering buying a piece of
excavation equipment for $70,000 in cash, with a 5 year useful life
and salvage value of $15,000. Maintenance will be $10,000 in the
first year and increase 3% per year, the company has an MARR of
10%, and the effective tax rate is 30%. Assume that the company can
write off depreciation (that is, these costs can be deducted from
taxable income).
1.What is the book value of the asset after...

A construction company is considering buying a piece of
excavation equipment for $70,000 in cash, with a 5 year useful life
and salvage value of $15,000. Maintenance will be $10,000 in the
first year and increase 3% per year, the company has an MARR of
10%, and the effective tax rate is 30%. Assume that the company can
write off depreciation (that is, these costs can be deducted from
taxable income).
1.What is the book value of the asset after...

ABC Products needs to replace its rawhide tanning and molding
equipment. It can be used for five years and will have no salvage
value. The equipment costs $930,000. The firm can lease it for
$245,000 a year, or it can borrow the money to purchase the
equipment at 6%. The firm's tax rate is 34%. The CCA rate is 20%
(Class ??.What is the present value of the depreciation tax shield?
Select one: a. $277,177 b. $258,913 c. $236,959 d....

Question text
ABC Products needs to replace its rawhide tanning and molding
equipment. It can be used for five years and will have no salvage
value. The equipment costs $930,000. The firm can lease it for
$245,000 a year, or it can borrow the money to purchase the
equipment at 9%. The firm's tax rate is 34%. The CCA rate is 20%
(Class 8).What is the present value of the depreciation tax
shield?
Select one:
a. $120,888
b. $186,000
c....

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...

A company is purchasing a new equipment in Class 8 (20% CCA rate
-- declining balance class, half year rule applicable) in 2019 for
$30,000. The machine is expected to result in annual revenue of
$14,000 for each of the next five years and will be sold at the end
of that time for an expected salvage value of $12,000. Maintenance
expenses are expected to be $1,400 for the first year and to
increase by $200 per year for each...

Assume that you will buy and operate a piece of equipment. The
machine costs $25,000. You estimate that the equipment will
generate $10,000 revenue, each year for six years. You also
estimate that operating costs for the machine will be $4,500 each
year for six years. These estimates are in constant 2019 dollars.
The inflation rate for revenues is estimated to be 3.5%. The
inflation rate for operating costs is estimated to be
5.0%. You will depreciate the machine using...

milton industries wants to purchase new equipment that has a quoted
price of $1,000,000. milton estimates an additional cost of $85,000
will be needed today to have the equipment modified, shipped, and
installed. the purchase of this additional equipment will require
milton to invest an estimated $55,000 in net working capital
upfront, and this investment should be recovered when milton sells
the equipment. if purchased, the equipment will be employed for a
total of five years, and then sold for...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 22 minutes ago

asked 30 minutes ago

asked 33 minutes ago

asked 39 minutes ago

asked 47 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 3 hours ago