RR must build a tunnel to maintain his access around the mountain. Thetunnel could be fabricated of normal steel for an initial cost of $45,000and should last for 18 years. Maintenance will cost $1,000 per year.Another option would be to use corrosion resistant steel, which will lastfor 18 years, with annual maintenance cost of $100. In 18 years therewould be no salvage value for either bridge. RR pays combined federaland state taxes at the 48% marginal rate and uses straight-linedepreciation. If the after tax MARR is 10%, what is the maximum amountthat should be spent on the corrosion-resistant tunnel?Enter your answer as follow: 123456.78

Normal steel:Initial cost: 45,000Expected life: 18 yearsAnnual maintenance cost:…

Answered: RR must build a tunnel to maintain his…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 14P

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Your firm needs a computerized machine tool lathe which costs $50,000 and requires $12,000 in maintenance for each year of its 3-year life. After three years, this machine will be replaced. The machine falls into the MACRS Links to an external site. 3-year class life category, and neither bonus depreciation nor Section 179 expensing can be used. Assume a tax rate of 21 percent and a discount rate of 12 percent.If the lathe can be sold for $5,000 at the end of year 3, what is the after-tax salvage value? (Round your answer to 2 decimal places.)
Simon Machine Tools Company is considering the purchase of a new set ofmachine tools to process special orders over the next three years. The following financial information is available:1. Without the project, the company expects to have a taxable income of$400,000 each year from its regular business over the next three years. 2. This three-year project requires the purchase of a new set of machine tools at a cost of $50,000. The equipment falls into the MACRS three-year class. The tools will be sold at the end of the project life for $10,000. The project will bring in additional annual revenue of $90,000, but it is expected to incur additional annual operating costs of $25,000.(a) What are the additional taxable incomes (from undertaking the project)during years 1 through 3, respectively?(b) What arc the additional income taxes (from undertaking the new orders) during years 1 through 3, respectively?
Dave's Demolitions Inc. is considering purchasing $697,400 of equipment for a four- year project. The equipment falls in the five-year MACRS class. At the end of the project the equipment can be sold for an estimated $135,000. If the tax rate is 23 percent, what is the amount of the after-tax salvage value of the equipment?
Simon Machine Tools Company is considering the purchase of a new set ofmachine tools to process special orders over the next three years. The following financial information is available: Without the project, the company expects to have a taxable income of $400,000 each year from its regular business over the next three years. This three-year project requires the purchase of a new set of machine tools at a cost of $50,000. The equipment falls into the MACRS three-year class. The tools will be sold at the end of the project life for $10,000. The project will bring in additional annual revenue of $90,000, but it is expected to incur additional annual operating costs of $25,000.(a) What are the additional taxable incomes (from undertaking the project) during years 1 through 3, respectively?(b) What are the additional income taxes (from undertaking the new orders) during years 1 through 3, respectively?
A large company must build a bridge to have access to land for expansion of its manufacturing plant. The bridge could be fabricated of normal steel for an initial cost of $30,000 and should last for 15 years. Maintenance will cost $1000 per year. If the steel used were more corrosion resistant, the annual maintenance cost would be only $100 per year, although the life would be the same. In 15 years there would be no salvage value for either bridge. The company pays combined federal and state taxes at the 32% marginal rate and uses straight-line depreciation. If the minimum attractive after-tax rate of return is 12%, what is the maximum amount that should be spent on the corrosion-resistant bridge?
A construction company is considering acquiring a new earthmover. The purchase price is $110,000, and an additional $25,000 is required to modify the equipment for special use by the company. The equipment falls into the MACRS seven-year classification (the tax life), and it will be sold after five years (the project life) for $50,000. The purchase of the earthmover will have no effect on revenues, but the machine is expected to save the firm $68,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 25%. Assume that the initial investment is to be financed by a bank loan at an interest rate of 10% payable annually. Determine the after-tax cash flows by using the generalized cash flow approach and the worth of the investment for this project if the firm's MARR known to be 12%. Click the icon to view the MACRS depreciation schedules. Click the icon to view the interest factors for discrete compounding when /= 10% per year. Click the icon to view the…
A road building contractor has received a major highway construction contract that will require 50,000 m3 of crushed stone each year for 5 years. The needed stone can be obtained from a quarry for S5.80/m3. As an alternative, the contractor has decided to try and purchase the quarry. He believes that if he owned the quarry, the stone would only cost him $4.30/m3. He thinks he could resell the quarry at-the end of 5 years for $40,000. If the contractor uses a 10% interest rate, evaluate how much would he be willing to pay for the quarry?
A proposed cost-saving device has an installed cost of $795,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes (MACRS schedule). The required initial net working capital investment is $79,000, the tax rate is 22 percent, and the project discount rate is 11 percent. The device has an estimated Year 5 salvage value of $121,000. What level of pretax cost savings do we require for this project to be profitable? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Answer is complete but not entirely correct. Pretax cost savings $ 194.191.50 X
A proposed cost-saving device has an installed cost of $795,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes (MACRS schedule). The required initial net working capital investment is $79,000, the tax rate is 22 percent, and the project discount rate is 11 percent. The device has an estimated Year 5 salvage value of $121,000. What level of pretax cost savings do we require for this project to be profitable? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. X Answer is complete but not entirely correct. Pretax cost savings 194,191.50 X $
A construction company is considering acquiring a new earthmover. The purchase price is $105,000, and an additional $28,000 is required to modify the equipment for special use by the company. The equipment falls into the MACRS seven-year classification (the tax life), and it will be sold after five years (the project life) for $55,000. The purchase of the earthmover will have no effect on revenues, but the machine is expected to save the firm $70,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 21%. Assume that the initial investment is to be financed by a bank loan at an interest rate of 6% payable annually. Determine the after-tax cash flows by using the generalized cash flow approach and the worth of the investment for this project if the firm's MARR is known to be 11%.
A proposed cost-saving device has an installed cost of $785,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes (MACRS schedule). The required initial net working capital investment is $75,000, the tax rate is 25 percent, and the project discount rate is 9 percent. The device has an estimated Year 5 salvage value of $115,000. What level of pretax cost savings do we require for this project to be profitable? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
A proposed cost-saving device has an installed cost of $825,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes (MACRS schedule). The required initial net working capital investment is $91,000, the tax rate is 23 percent, and the project discount rate is 9 percent. The device has an estimated Year 5 salvage value of $139,000. What level of pretax cost savings do we require for this project to be profitable? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Pretax cost savings

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