Question

Ausel's is considering a three-year project that will require an investment of $738,000 in manufacturing equipment...

Ausel's is considering a three-year project that will require an investment of $738,000 in manufacturing equipment that is five-year MACRS property for tax purpose. At the end of the project, the equipment can be sold for 18 percent of its original cost. The project is expected to generate annual sales of $679,000 with costs of $321,000. The tax rate is 22 percent and the required rate of return is 15.2 percent.

What is the aftertax salvage value?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

5 Year MACRS Dep Rate:

Year Dep Rate
1 20.00%
2 32.00%
3 19.20%
4 11.52%
5 11.52%
Total 94.24%

BookValue after 5Years = COst * ( 100% - 94.24% )

= $ 738000 * 5.76%

= $ 42508.80

Profit = Sale Price - Book Value

= [ $ 738000 * 18% ] - $ 42508.80

= $132840 - $ 42508.80

= $ 90331.20

Tax on Profit on sale = Profit * Tax Rate

= $ 90331.20 * 22%

= $19872.86

After TaxSale Value = Sale Value -Tax on Profit

= $ 132840 - $ 19872.86

= $ 112967.14

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
Ausel's is considering a three-year project that will require an investment of $738,000 in manufacturing equipment...
Ausel's is considering a three-year project that will require an investment of $738,000 in manufacturing equipment that is five-year MACRS property for tax purpose. At the end of the project, the equipment can be sold for 18 percent of its original cost. The project is expected to generate annual sales of $679,000 with costs of $321,000. The tax rate is 22 percent and the required rate of return is 15.2 percent. What is the OCF at the end of Year...
A project will require $511,800 for manufacturing equipment. The equipment is classified as five-year property for...
A project will require $511,800 for manufacturing equipment. The equipment is classified as five-year property for MACRS. The project has a three-year life. At the end of the project, the equipment will be worth about 20 percent of what we paid for it. We will have to invest $47,000 in net working capital at the start. After that, net working capital requirements will be 10 percent of sales. All additional investments in net working capital will be recovered at the...
A project will require $511,800 for manufacturing equipment. The equipment is classified as five-year property for...
A project will require $511,800 for manufacturing equipment. The equipment is classified as five-year property for MACRS. The project has a three-year life. At the end of the project, the equipment will be worth about 20 percent of what we paid for it. We will have to invest $47,000 in net working capital at the start. After that, net working capital requirements will be 10 percent of sales. All additional investments in net working capital will be recovered at the...
A project will require $511,800 for manufacturing equipment. The equipment is classified as five-year property for...
A project will require $511,800 for manufacturing equipment. The equipment is classified as five-year property for MACRS. The project has a three-year life. At the end of the project, the equipment will be worth about 20 percent of what we paid for it. We will have to invest $47,000 in net working capital at the start. After that, net working capital requirements will be 10 percent of sales. All additional investments in net working capital will be recovered at the...
Pear Orchards is evaluating a new project that will require equipment of $227,000. The equipment will...
Pear Orchards is evaluating a new project that will require equipment of $227,000. The equipment will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company plans to shut down the project after 4 years. At that time, the equipment could be sold for $52,800. However, the company plans to keep the equipment for a different project in another state. The tax rate is...
A firm is considering three different projects for investment.  Project A will require an initial investment of...
A firm is considering three different projects for investment.  Project A will require an initial investment of $100,000 today and will generate annual cash flows of $25,000 for a five-year period.  Project B will require an initial investment of $150,000 today will generate annual cash flows of $35,000 for a five-year period.  Project C will require an initial investment of $275,000 today, and will generate a cash flow of $75,000 in the first year.  Cash flows will grow by 3% per year for project...
An asset used in a four-year project falls in the five-year MACRS class (MACRS Table) for...
An asset used in a four-year project falls in the five-year MACRS class (MACRS Table) for tax purposes. The asset has an acquisition cost of $8,500,000 and will be sold for $2,140,000 at the end of the project. If the tax rate is 22 percent, what is the aftertax salvage value of the asset?
A piece of newly purchased industrial equipment costs $948,000. Assume the equipment is classified as five-year...
A piece of newly purchased industrial equipment costs $948,000. Assume the equipment is classified as five-year property under MACRS. The equipment is to be used in a five-year project. The relevant income tax rate is 22 percent, and the capital gains tax rate is 15 percent. If the equipment can be sold for $80,000 at the end of its project life, what is the after-tax salvage value from the sale of this equipment? $65,182 $74,413 $54,246 $80,000 $82,315 If the...
A company is considering a 3-year project that requires paying $5,000,000 for a cutting-edge production equipment....
A company is considering a 3-year project that requires paying $5,000,000 for a cutting-edge production equipment. This equipment falls into the 5-year MACRS class and will have a market value of half its original purchase price after 2 years. The project requires an initial investment in net working capital of $350,000. The project is estimated to generate $1,200,000 in annual operating cash flows. The company faces a 40% tax rate. The required rate of return on projects like this one...
Explorer, Inc. is considering a new 4-year project that requires an initial fixed asset (equipment) investment...
Explorer, Inc. is considering a new 4-year project that requires an initial fixed asset (equipment) investment of $200,000. The fixed asset is three-year MACRS property for tax purposes. In four years, the equipment will be worth about half of what we paid for it. The project is estimated to generate $500,000 in annual sales, with costs of $400,000. The firm has to invest $100,000 in net working capital at the start. After that, net working capital requirements will be 25...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT