Question

1. A law firm plans to invest in a small business computer system.  The initial investment is...

1. A law firm plans to invest in a small business computer system.  The initial investment is $35,000.  The firm’s tax rate is 40%.  The computer system should provide additional revenue of $25,000 per year for the next six years.  Depreciation in Year 1 is $7,000 and $11,200 in Year 2.  Calculate net after-tax cash flows from this investment for the first two years

2.The Danforth Tire Company will purchase of a new machine that would increase the speed of manufacturing and save money. The net cost of this machine is $66,000. Below are the annual cash flow projections.  If the cost of capital is 23 percent

  a) what is the IRR?           
b) would it be profitable to do this project?  Why or why not?

                                    Year                                                               Cash Flow

                                         1.......................................          $21,000

                                         2.......................................            29,000

                                         3.......................................            36,000

                                         4.......................................            16,000

                                         5.......................................              8,000

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
12. The Danforth Tire Company is considering the purchase of a new machine that would increase...
12. The Danforth Tire Company is considering the purchase of a new machine that would increase the speed of manufacturing and save money. The net cost of this machine is $66,000. The annual cash flows have the following projections. Year Cash Flow 1 $21,000 2 $29,000 3 $36,000 4 $16,000 5 $8,000 a. If the cost of capital is 10 percent, what is the net present value? b. What is the internal rate of return (IRR) c. Should the project...
Baxwell tire company is thinking about buying a new machine that will increase the speed of...
Baxwell tire company is thinking about buying a new machine that will increase the speed of manufacturing and save money. The net cost of the machine is $66,000. The annual cash flows are projected as follows: Year Cash Flow 1 $21,000 2 $ 29,000 3 $ 36,000 4 $ 16,000 5 $ 8,000 A. If the cost of capital is 10%, what is the net present value? B. What is the internal rate return? C. Should the project be accepted?...
Hanover Industries is evaluating an investment in new computer system with a cost of $75,000 and...
Hanover Industries is evaluating an investment in new computer system with a cost of $75,000 and a useful life of four years with no salvage value. The company’s desired rate of return is 14 percent. The computer system is expected to generate the following net cash inflows for each of the next four years: Year 1 $15,000 Year 2 $25,000 Year 3 $30.000 Year 4 $32,000 Required: Determine the net present value of the investment in the new computer system....
Q1.Walker & Campsey wants to invest in a new computer system, and management has narrowed the...
Q1.Walker & Campsey wants to invest in a new computer system, and management has narrowed the choice to Systems A and B. System A requires an up-front cost of $125,000, after which it generates positive after-tax cash flows of $80,000 at the end of each of the next 2 years.  The system could be replaced every 2 years, and the cash inflows and outflows would remain the same. System B also requires an up-front cost of $125,000, after which it...
Calculating initial investment   Vastine​ Medical, Inc., is considering replacing its existing computer​ system, which was purchased...
Calculating initial investment   Vastine​ Medical, Inc., is considering replacing its existing computer​ system, which was purchased 3 years ago at a cost of $322,000. The system can be sold today for $204,000. It is being depreciated using MACRS and a​ 5-year recovery period​ (see the table. A new computer system will cost $501,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 40% tax rate on ordinary income and...
• Your company has spent $240,000 on research to develop a new computer game. The firm...
• Your company has spent $240,000 on research to develop a new computer game. The firm is planning to spend $44,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $5,400. The machine has an expected life of 3 years, a $29,000 estimated resale value, and falls under the MACRS 5-year class life. Revenue from the new game is expected to be $340,000 per year, with costs...
A firm is trying to determine the cash flow from selling an old computer system to...
A firm is trying to determine the cash flow from selling an old computer system to an interested buyer. The computer system was purchased five years ago for $428,117.00. The system was depreciated using the 7-year MACRS schedule. The firm has an offer this morning for $48,659.00. The tax rate facing the firm is 38.00%. The firm will only accept the offer if it generates a cash flow greater than $48,608.00.
"A firm is considering purchasing a computer system. -Cost of system is $198,000. The firm will...
"A firm is considering purchasing a computer system. -Cost of system is $198,000. The firm will pay for the computer system in year 0. -Project life: 5 years -Salvage value in year 0 (constant) dollars: $10,000 -Depreciation method: five-years MACRS -Marginal income-tax rate = 40% (remains constant over time) -Annual revenue = $147,000 (year-0 constant dollars) -Annual expenses (not including depreciation) = $88,000 (year-0 constant dollars) -The general inflation rate is 4.9% during the project period (which will affect all...
Drake Corporation is reviewing an investment proposal. The initial cost is $105,000. Estimates of the book...
Drake Corporation is reviewing an investment proposal. The initial cost is $105,000. Estimates of the book value of the investment at the end of each year, the net cash flows for each year, and the net income for each year are presented in the schedule below. All cash flows are assumed to take place at the end of the year. The salvage value of the investment at the end of each year is assumed to equal its book value. There...
Alpha & Omega wants to invest in a new computer system, and management has narrowed the...
Alpha & Omega wants to invest in a new computer system, and management has narrowed the choice to Systems A and B. System A requires an up-front cost of $100,000, after which it generates positive after-tax cash flows of $70,000 at the end of each of the next 2 years. The system could be replaced every 2 years, and the cash inflows and outflows would remain the same. System B also requires an up-front cost of $100,000, after which it...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT