4. Baird Bros. Construction is considering the purchase of a machine $250,000. The machine is expected to generate cash flows of $40,0 for 10 years and can be sold at the end of 10 years for $10,000. Int Assume the machine purchase would be paid for on the first day of that all other cash flows occur at the end of the year. Ignore income

4. Baird Bros. Construction is considering the purchase of a machine $250,000. The machine is expected to generate cash flows of $40,0 for 10 years and can be sold at the end of 10 years for $10,000. Int Assume the machine purchase would be paid for on the first day of that all other cash flows occur at the end of the year. Ignore income

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 17P: The Perez Company has the opportunity to invest in one of two mutually exclusive machines that will...

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Baird Bros. Construction is considering the purchase of a machine at a cost of $202,000. The machine is expected to generate cash flows of $37,000 per year for 10 years and can be sold at the end of 10 years for $27,000. Interest is at 11%. Assume the machine purchase would be paid for on the first day of year one, but that all other cash flows occur at the end of the year. Ignore income tax considerations. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required:a. What is the net present value of the cash flows?b. Determine whether Baird should purchase the machine.
What will be the annual cash outflows for Mimi Inc. if it leased a milling machine for $8,200 per year for 5 years. Assume that the new machine cost $42,000 and will depreciate on a straight line basis over the 5 years and that Mimi has a tax rate of 32 percent. Select one: O a. $42,000 O b. -$8,264 O . - $2,688 O d. - $5,576 O e. $33,800
Harper Corporation has the following information about the purchase of a new piece of equipment: Cash revenues less cash expenses $50,000 per yearCost of equipment $130,000Salvage value at the end of the 8 th year $22,000Increase in working capital requirements $35,000Tax rate 25 percentLife 8 years The cost of capital is 13 percent. Required:iii. Calculate the after-tax payback period.iv. Calculate the accrual accounting rate of return on original investment for each of the eightyears.v. Calculate the net present value (NPV).vi. Calculate the internal rate of return (IRR).
4. We-Clean-U, Inc., expects to receive $65,000 each year for 5 years from the sale of its newest soap, OnGuard. There will be an initial investment in new equipment of $150,000. The expenses of manufacturing and selling the soap will be $17,500 per year. Straight-Line Depreciation is to be used with $5,000 Salvage Value. Annual income tax rate is at 30%. a. Compute the ATCF for the 5-year period using the tabular method (Show YEAR, BTCF, DEPRECIATION, TAXABLE INCOME, INCOME TAX, ATCF). b. If the MARR for We-Clean-U is 12%, is OnGuard a worthwhile investment?
A milling machine costing $18,000 will be depreciated using 7-year MACRS. The machine will be sold at the end of year 8 for $1000. The combined tax rate is 25%, and the MARR is 10%. What is the present worth of the after-tax cash flows? Submit your spreadsheet. Answer to the nearest whole dollar without the $ sign.
b) Pisces Corporation is planning to buy a machine for $20,000 that may run for 4 years (probability 60%), 5 years (probability 30%), or for 6 years (probability 10%). Pisces will depreciate the machine on straight-line basis for 4 years, without any resale. The tax rate of Pisces is 30% and the proper discount rate is 8%. Calculate the minimum annual earnings generated by this machine to be acceptable to Pisces.
The Wet Corporation has an investment project that will reduce expenses by $30,000 per year for 3 years. The project's cost is $35,000. If the asset is part of the 3-year MACRS category (33.33% first year depreciation) and the company's combined tax rate is 27%, what is the cash flow from the project in year 17 Note: Do not round intermediate calculations. Round your answer to the nearest dollar amount. Multiple Choice $24,500 $25,830 $25,050 $26.510
2.-DO IT IN EXCEL, AND SHOW THE FORMULASIf the company purchases the machine, its cost of $276,000 will be financed with a loan at 14.8% interest for three years requiring equal annual payments including principal and interest. The machine will be depreciated at 20% per year. The company will pay $8,000 per year for maintenance services. The company plans to keep the machine even after its payback period.What is the amount of the annual payment? A) $120,480.90 B) $85,442.71 C) $276,000.00 D) $361,442.71
3. Kansas Corporation is reviewing an investment proposal that has an initial cost of $70,500. An estimate of the investment's end-of-year book value, the yearly after-tax net cash inflows, and the yearly net income are presented in the schedule below. Yearly after-tax net cash inflows include savings from the depreciation tax shield. The investment's salvage value at the end of each year is equal to book value, and there will be no salvage value at the end of the investment's life. Yearly After-Tax Net cash Inflows Yearly Net Income $ 8,500 9,500 10,500 11,500 12,500 Initial Cost and Book Value Year $41,000 27,000 16,500 9,500 $ 26,000 23,500 21,000 18,500 16,000 2 3 4 $105,000 $52,500 Kansas uses a 14% after-tax target rate of return for new investment proposals. PV of $1 at 14% FV of $1 at 14% 1.140 1.300 1.482 1.689 1.925 2.195 FV of an ordinary annuity at 14% 1.000 2.140 3.440 4.921 6.610 8.536 PV of an ordinary annuity at 14% Year 0.877 0.769 0.675 0.592 0.519 0.456 0.877 1.647…
A project requires an increase of $2100 in Net Working Capital at the beginning of the project, which will be fully recovered after the completion of the project. Equipment with a book value of $11,000 will be sold at the end of the project for a salvage value of $6,000. The tax rate is 20%. What is the incremental free cash flow in the year following the end of the project? Question 3Answer a. $9100 b. $7100 c. $4900 d. $2900
Esc You consider purchasing a new piece of equipment (7yr MACRS property) for your manufacturing process for $120,000. The equipment has a 6-year useful life and no salvage value. The equipment is expected to generate an additional $40,000 of net income before taxes and depreciation each year by using this upgraded system. The combined federal and state income tax rate= 35%. Annual inflation = 4%. a. Fill in the following table assuming MACRS depreciation rates Year 46°F Rain showers 0 1 F1 2 O 2 3 4 5 Pretax income 6 MACRS Taxable Depreciation income F2 - F3 + F4 Ⓡ b. If your MARR = 12%, should you purchase this system based on your real after-tax income? Why or why not? F5 8 C B Tax owed F6 Q Search G After tax income F7 Ca 7 F8 O Inflation adjustment factor O F9 ala LG F10 Real after tax income 0 A I THE F11 - 0 1 asod F12 + Prt Sc ScrLk Post-it sod Ins Post-it Del Backspace Post-it PgUp Home asod> Post-it Mumi 1-10 PgOn End Pause Break 11-15 11-15 C
NUBD Co. purchase a machine for P180,000, which will be depreciated on the straight-line basis over a five year period with no salvage value. The related cash flow from operations, net of income taxes, is expected to be P40,000, a year. Assume that NUBD’s effective income tax rate is 40% for all years.What is the payback period?