Your company is considering a new project that will require $1,033,000 of new equipment at the start of the project. The equipmentwill have a depreciable life of 10 years and will be depreciated to a book value of $153,000 using straight-line depreciation. Neitherbonus depreciation nor Section 179 expensing will be used. The cost of capital is 13 percent, and the firm's tax rate is 21 percent.Estimate the present value of the tax benefits from depreciation. (Round your answer to 2 decimal places.)Present value

As per Straight Line methodAnnual Depreciation= (Cost-SalvageValue)/Useful life=…

Answered: Your company is considering a new…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 8P

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The Perez Company has the opportunity to invest in one of two mutually exclusive machines that will produce a product it will need for the foreseeable future. Machine A costs $10 million but realizes after-tax inflows of $4 million per year for 4 years. After 4 years, the machine must be replaced. Machine B costs $15 million and realizes after-tax inflows of $3.5 million per year for 8 years, after which it must be replaced. Assume that machine prices are not expected to rise because inflation will be offset by cheaper components used in the machines. The cost of capital is 10%. By how much would the value of the company increase if it accepted the better machine? What is the equivalent annual annuity for each machine?
The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of 170,000. The project will produce 1,000 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be 138 per case, and the Year-1 cost per case will be 105. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 6% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. a. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? b. Suppose that the company had forgotten to include future inflation. What would they have incorrectly calculated as the projects NPV?
Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $17 million, and production and sales will require an initial $5 million investment in net operating working capital. The company’s tax rate is 25%. What is the initial investment outlay? The company spent and expensed $150,000 on research related to the new product last year. What is the initial investment outlay? Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. What is the initial investment outlay?
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Your company is considering a new project that will require $1 million of new equipment at the start of the project. The equipment will have a depreciable life of 10 years and will be depreciated to a book value of $150,000 using straight-line depreciation. Neither bonus depreciation nor Section 179 expensing will be used. The cost of capital is 13 percent, and the firm's tax rate is 21 percent. Estimate the present value of the tax benefits from depreciation. (Round your answer to 2 decimal places.)
Your company is considering a new project that will require $1 million of new equipment at the start of the project. The equipment will have a depreciable life of 10 years and will be depreciated to a book value of $150,000 using straight-line depreciation. Neither bonus depreciation nor Section 179 expensing will be used. The cost of capital is 13 percent, and the firm’s tax rate is 21 percent. Estimate the present value of the tax benefits from depreciation. You must use the built-in Excel function to answer this question. All answers should be displayed as positive numbers. What is the built in Excel function for Present Value? The answer should be around $96,858. The last 2 experts have not been correct.
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your company is considering a new project that will require $10,000 of new equipment at the start of the project. T he equipment will have a depreciable life of five years and will be depreciated to a book value of $3000 using straight line depreciation. the cost of capital is 9 percent and the firm tax rate is 21 percent. estimate the present value of the tax benifits frm depreciation.
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