1.) A company is considering the installation of a new machine that costs $150,000. The machine...
Question:
Show calculations
1.) A company is considering the installation of a new machine that costs $150,000. The machine is expected to lead to a new net income of $40,000 per year for the next five years. Using SL depreciation, $0 salvage value, and an effective income tax rate of 50% determine the after-tax rate of return for this investment.
If the company's after-tax MARR rate is 10%, would this be a good investment or not?
2.) An auto supplier installed new equipment costing $1,050,000. The equipment generated new income averaging $300,000 per year, and its operating costs averaged $48,000 per year. The equipment was depreciated using the MACRS method, assuming a recovery period of 7 years and no salvage value. However, the equipment was kept in service for a total of 10 years, after which time a scrap dealer bought it for $60,000. The company uses an after-tax MARR rate of 8% per year and is in the 30% tax bracket.
Determine the equipment's after-tax net present worth over the 10-year service period.
Net Present value:
"Net Present value" is calculated by deducting the initial cash flow of the asset from the total of present value of annuity of annual cash flow and present value of salvage value of asset. MARR rate is discount rate used in calculation of net present value.
Answer and Explanation: 1
Become a Study.com member to unlock this answer! Create your account
View this answer1)The after-tax rate of return for this investment and to determine whether a investment is good or not is calculated or explained below:
Annual Net...
See full answer below.
Ask a question
Our experts can answer your tough homework and study questions.
Ask a question Ask a questionSearch Answers
Learn more about this topic:
Get access to this video and our entire Q&A library
How to Calculate Net Present Value: Definition, Formula & Analysis
from
Chapter 5 / Lesson 20
18K
Learn about what net present value is, how it is calculated both for a lump sum and for a stream of income over multiple years. View some examples on NPV.
Related to this Question
- A large, profitable corporation with net income exceed $20 million is considering the installation of a new machine that cost $100,000 with the expected salvage value of $20,000 after 4 years of usefu
- A company is considering the purchase of a new machine for $44,800. Management predicts that the machine can produce sales of $28,000 each year for the next 10 years. Expenses are expected to include
- A company is considering the purchase of a new machine for $63,000. Management predicts that the machine can produce sales of $17,500 each year for the next 10 years. Expenses are expected to include
- 1) A company is considering the purchase of a new machine for $66,000. Management predicts that the machine can produce sales of $22,000 each year for the next 10 years. Expenses are expected to inclu
- A company is considering the purchase of a new machine for $54,400. Management predicts that the machine can produce sales of $37,600 each year for the next 10 years. Expenses are expected to include
- A company is considering the purchase of a new machine for $59,000. Management predicts that the machine can produce sales of $17,100 each year for the next 10 years. Expenses are expected to include
- A company is considering the purchase of a new machine for $53,000. Management predicts that the machine can produce sales of $16,500 each year for the next 10 years. Expenses are expected to includ
- A company is considering the purchase of a new machine for $62,000. Management predicts that the machine can produce sales of $17,400 each year for the next 10 years. Expenses are expected to include
- A company is considering the purchase of a new machine for $54,000. Management predicts that the machine can produce sales of $16,600 each year for the next 10 years. Expenses are expected to include
- A company is considering the purchase of a new machine for $48,000. Management predicts that the machine can produce sales of $16,000 each year for the next 10 years. Expenses are expected to include
- 1.) A company is considering the purchase of a new machine for $52,000. Management predicts that the machine can produce sales of $16,400 each year for the next 10 years. Expenses are expected to incl
- A company is considering the purchase of a new machine for $50,000. Management predicts that the machine can produce sales of $16,200 each year for the next 10 years. Expenses are expected to include
- A machine shop has the opportunity to purchase a new machine for $20,000. After carefully studying projected costs and revenues, the company estimates that the new machine will produce a net cash flow of $2,600 annually and will last for ten years. At the
- X Company is considering buying a new machine that will cost $150,000 and generate annual cash inflows of $32,750 for 5 years. The internal rate of return for this machine is approximately _____?
- X Company is considering buying a new machine that will cost $150,000 and generate annual cash inflows of $34,650 for 5 years. The internal rate of return for this machine is _____.
- Yarrow Co. is considering the purchase of a new machine that costs $450,000. The new machine will generate net cash flow of $150,000 per year and net income of $100,000 per year for five years. Yarrow's desired rate of return is 6%. The present value fact
- Palmetto products is considering the purchase of a new industrial machine. The estimated cost of the machine is 50,000. The machine is expected to generate annual cash inflows for the next four years
- A machine will cost $45,000 and is expected to generate equal annual cash flows of $15,000 at the end of each of the next five years. In addition, the machine is expected to have a salvage value of $8,000 at the end of the fifth year. Determine the net pr
- X Company bought a machine three years ago for $135,000 but is considering replacing it with a new, more efficient one. The new machine will cost $170,000. Both machines will last for five more years, and both will be worth zero at that time. The current
- Parkways Inc. is considering the purchase of a new machine. The machine will cost $60,000 to purchase and will generate $15,000 of cash revenues per year for the next 8 years. The machine will cost $1,000 per year to operate & maintain. At the end of its
- A company is considering a new capital investment. The following information is available on the investment. The cost of the machine will be $330,000. The annual cost savings if the new machine is acquired will be $85,000. The machine will have a 5-year l
- A company is considering the purchase of a new machine for 54,400 dollars. Management predicts that the machine can produce sales of 37,600 dollars each year for the next 10 years. Expenses are expect
- The Zone Company is considering the purchase of a new machine at a cost of $1,040,000. The machine is expected to improve productivity and thereby increase cash inflows by $250,000 per year for 7 years. It will have no salvage value. The company requires
- A company is considering purchasing a new machine costing $10,000. The machine is expected to have a salvage value of $1500 whenever it is retired. The operating disbursements for the first year are e
- Palmetto is considering the purchase of a new industrial machine. The estimated cos of the machine is 50,000 The machine is expected to generate annual cash inflows for the next four years; Year 1 25,
- A new machine that costs $80, 800 is expected to save annual cash operating costs of $20,000 over each of the next seven years. The machine's internal rate of return is: approximately 12%. approximate
- A new machine that costs $172,100 is expected to save annual cash operating costs of $40,000 over each of the next nine years. The machine's internal rate of return is: a. approximately 14%. b. approximately 16%. c. approximately 18%. d. approximately 20%
- Lily Company is planning to buy a machine at a cost of $240,000. The machine will generate net cash inflows at the end of each year for the next 5 years of $70,000. At the end of 5 years, the machine
- A company's old machine, which cost $30,000 and had accumulated depreciation of $21,000, was traded in on a new machine of like purpose having an estimated 20-year life with an invoice price of $40,000. The company also paid $33,000 cash, along with its o
- The Comil Corporation recently purchased a new machine for its factory operations at a cost of $390,875. The investment is expected to generate $125,000 in annual cash flows for a period of five year
- A company is considering the purchase of new equipment for $45,000. The projected annual net cash flows are $19,000. The machine has a useful life
- A company is considering the purchase of a new machine that will cost the company $30,000 and will be worth zero at the end of 3 years. Their current tax rate is 20% and they will depreciate the machi
- A company is considering replacing an old piece of machinery, which cost $602,200 and has $351,200 of accumulated depreciation to date, with a new machine that costs $483,800. The old machine could be
- Conyer Company is considering purchasing a new machine which is expected to generate sales of $10,000 per year for the next 8 years. The company uses a discount rate of 10%. A) What is the maximum the company should pay for the machine if the expected res
- Vextra Corporation is considering the purchase of new equipment costing $37,000. The projected annual cash inflow is $11,400, to be received at the end of each year. The machine has a useful life of 4
- Vextra Corporation is considering the purchase of new equipment costing $38,000. The projected annual cash inflow is $11,600, to be received at the end of each year. The machine has a useful life of 4
- A company is considering purchasing a machine for $123,000. The machine is expected to generate a net after-tax income of $8,200 per year. The depreciation expense would be $12,300. What is the payback period for this machine?
- A company is considering replacing an old piece of machinery, which cost $597,900 and has $352,300 of accumulated depreciation to date, with a new machine that costs $486,100. The old machine could be
- Crockin Corporation is considering a machine that will save $9,000 a year in cash operating costs each year for the next six years. At the end of six years, it would have no salvage value. If this machine costs $33,165 now, calculate the machine's intern
- A company is considering replacing an old piece of machinery, which cost $598,000 and has $349,500 of accumulated depreciation to date, with a new machine that has a purch
- A company can buy a machine that is expected to have a three-year life and a $36,000 salvage value. The machine will cost $1,824,000 and is expected to produce a $206,000 after-tax net income to be re
- A company can buy a machine that is expected to have a three-year life and a $33,000 salvage value. The machine will cost $1,812,000 and is expected to produce a $203,000 after-tax net income to be re
- A company can buy a machine that is expected to have a three-year life and a $23,000 salvage value. The machine will cost $1,772,000 and is expected to produce a $193,000 after-tax net income to be re
- A company can buy a machine that is expected to have a three-year life and a $31,000 salvage value. The machine will cost $1,804,000 and is expected to produce a $201,000 after-tax net income to be re
- A company can buy a machine that is expected to have a three-year life and $30,000 salvage value. The machine will cost $1,800,000 and is expected to produce a $200,000 after-tax net income to be rece
- A company can buy a machine that is expected to have a three-year life and a $25,000 salvage value. The machine will cost $1,780,000 and is expected to produce a $195,000 after-tax net income to be re
- A company is planning to replace an old machine with a new one. Which of the following is a sunk cost? a. cost of the new machine b. sales price of the old machine c. future maintenance costs of the old machine d. original cost of the old machine
- A company is considering purchasing a machine for $85,000. The machine is expected to generate a net after-tax income of $11,250 per year. Depreciation expense would be $8,500. What is the payback per
- Smith Company has an investment opportunity to purchase a new machine costing $75,000 that is expected to yield the following net cash flows over the next five years: Year 1: $15,000 Year 2: $30,000
- Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $534,000 or a new model 220 machine costing $422,000 to replace a machine that was purchased 5 years ago for $473,000. The old machine was used to make
- Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $443,000 or a new model 220 machine costing $404,000 to replace a machine that was purchased 12 years ago for $411,000. The old machine was used to mak
- Renfroe Corporation is considering the purchase of a machine that would cost $22,712 and would have a useful life of 5 years. The machine would generate $6,300 of net annual cash inflows per year for
- A company must decide between two new machines. The first machine has an initial cost of $45,000 with an estimated life of 12 years and a salvage value of $8,000. Its annual operating cost is $4,000.
- Baldock Inc. is considering the acquisition of a new machine that costs $367,000 and has useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash flows that would be produced by the machine are:
- Baldock Inc. is considering the acquisition of a new machine that costs $458,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash flows that would be produced by the machine are: Increme
- A company's old machine that cost $47,000 and had accumulated depreciation of $36,300 was traded in on a new machine having an estimated 20-year life with an invoice price of $57,700. The company also paid $49,300 cash, along with its old machine to acqui
- A company's old machine that cost $56,000 and had accumulated depreciation of $44,400 was traded in on a new machine having an estimated 20-year life with an invoice price of $67,600. The company also paid $57,400 cash, along with its old machine to acqui
- A company's old machine that cost $40,000 and had accumulated depreciation of $22,000 was traded in on a new machine having an estimated 20-year life with an invoice price of $45,000. The company also paid $33,000 cash, along with its old machine to acqui
- New machine costs $77,000 and is expected to be able to be used to replace an outsourced job that would cost $20,000 for each of the next 10 years. You expect to sell the machine after 10 years of use for a salvage value of $5,000. The initial cost of the
- Co. X has gathered the following estimates: Machine A Machine B Cost $600,000 $600,000 Life 5 yrs 5 yrs Net Cash Inflow: Yr 1 $100,000 $500,000 Yr 2 $200,000 $400,000 Yr 3 $300,000 $300,000 Yr 4 $400,000 $200,000 Yr 5 $500,000 $100,000 Co. X uses the net
- A Corporation recently purchased a new machine for its factory operations at a cost of $840,000. The investment is expected to generate $250,000 in annual cash flows for a period of five years. The required rate of return is 12%. The new machine is expect
- Horn Company is considering the purchase of a new machine for $108,000. The machine would replace an old piece of equipment that costs $41,830 per year to operate. The new machine would cost $25,720 per year to operate. The old machine currently in use ca
- A new manufacturing machine is expected to cost $278,000, have an eight-year life, and a $30,000 salvage value. The machine will yield an annual incremental after-tax income of $35,000 after deducting
- Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $491,000 cost with an expected four-year life and a $19,000 salvag
- Investment #1: A new operating system for an existing machine is expected to cost $640,000 and have a useful life of six years. The system yields an incremental after-tax income of $255,000 each year
- A company is considering investing in a new machine that requires a cash payment of $64,949 today. The machine will generate annual cash flows of $21,384 for the next three years. Assume the company u
- A company is considering investing in a new machine that requires a cash payment of $51,849 today. The machine will generate annual cash flows of $20,483 for the next three years. Assume the company u
- A company can buy a machine that is expected to have a three-year life and a $21,000 salvage value. The machine will cost $1,764,000 and is expected to produce a $191,000 after-tax net income to be received at the end of each year. If a table of present v
- A company can buy a machine that is expected to have a three-year life and a $29,000 salvage value. The machine will cost $1,796,000 and is expected to produce a $199,000 after-tax net income to be received at the end of each year. If a table of present v
- The Barnum Company is considering purchasing a machine that would cost $220,000. It is expected that the machine will last 6 years and produce net cash inflows of $44,000, $50,000, $40,000, $80,000, $
- The Barnum Company is considering purchasing a machine that would cost $120,000. It is expected that the machine will last 6 years and produce net cash inflows of $24,000, $40,000, $48,000, $8,000, $4
- A company is considering purchasing a machine for $21,000. The machine will generate an after-tax net income of $2,000 per year. Annual depreciation expense would be $1,500. What is the approximate
- Richol Corp. is considering an investment in new equipment costing $180,000. The equipment will be depreciated on a straight-line basis over 5-year life and is expected to generate net cash inflows of $45,000 the first year, $65,000 the second year, and $
- The Zeron Corporation wants to purchase a new machine for its factory operations at a cost of $380,000. The investment is expected to generate $225,000 in annual cash flows for a period of four years.
- You are thinking of buying a new machine for your business. The cost of the new machine is $50,000 and it will have a depreciable life of 5 years. This machine will save you $10,000 a year in operating costs. Your firm uses straight-line depreciation. Has
- Baldock Inc. is considering the acquisition of a new machine that costs $426,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and
- Machine Replacement Decision : A company is considering replacing an old piece of machinery, which cost $600,500 and has $348,800 of accumulated depreciation to date, with a new machine that costs $48
- Bets Company is currently considering the purchase of some new machinery. The machinery will have a useful lifetime of 9 years and will cost $600,000 to be paid in the current period. If it decides to purchase it, the company expects that the new machiner
- A new operating system for an existing machine is expected to cost $780,000 and have a useful life of six years. The system yields an incremental after-tax income of $225,000 each year after deducting its straight-line depreciation. The predicted salvage
- A new operating system for an existing machine is expected to cost $270,000 and have a useful life of five years. The system yields an incremental after-tax income of $77,884 each year after deducting its straight-line depreciation. The predicted salvage
- A new operating system for an existing machine is expected to cost $520,000 and have a useful life of six years. The system yields an incremental after-tax income of $150,000 each year after deducting its straight-line depreciation. The predicted salvage
- A new operating system for an existing machine is expected to cost $770,000 and have a useful life of six years. The system yields an incremental after-tax income of $295,000 each year after deducting its straight-line depreciation. The predicted salvage
- A new operating system for an existing machine is expected to cost $750,000 and have a useful life of six years. The system yields an incremental after-tax income of $160,000 each year after deducting its straight-line depreciation. The predicted salvage
- A new operating system for an existing machine is expected to cost $300,000 and have a useful life of six years. The system yields an incremental after-tax income of $86,538 each year after deducting its straight-line depreciation. The predicted salvage
- A new operating system for an existing machine is expected to cost $260,000 and have a useful life of five years. The system yields an incremental after-tax income of $75,000 each year after deducting its straight-line depreciation. The predicted salvage
- 1a. Minden Company's required rate of return is 11%. The company can purchase a new machine at a cost of $40,100. The new machine would generate cash inflows of $14,000 per year and have a eight-year
- Tidwell Corporation is considering the purchase of a machine costing $18,000. Tidwell estimates that this machine will save $5,000 per year in cash operating expenses for the next five years. If the m
- Landmark Company is considering an investment in new equipment costing $500,000. The equipment will be depreciated on a straight-line basis over a five-year life and is expected to generate net cash inflows of $120,000 the first year, $140,000 the second
- A company is considering a new bottle-capping machine with an initial cost of $300,000 and a 20 year life. Yearly maintenance cost is estimated to be $15,000 per year. The machine required a major ove
- Baldock Inc. is considering the acquisition of a new machine that costs $355,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash f
- Baldock Inc. is considering the acquisition of a new machine that costs $435,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash f
- Baldock Inc. Is considering the acquisition of a new machine that costs $423,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash
- Baldock Inc. is considering the acquisition of a new machine that costs $364,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash f
- Baldock Inc. is considering the acquisition of a new machine that costs $361,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash f
- A company bought a machine that has an expected life of seven years and no salvage value. Management estimates that this machine will generate annual after-tax net income of $540. If the accounting ra
- Befort Company filed for a patent on a new type of machine. The application costs totaled $12,000. R&D costs incurred to create the machine were $75,000. In the year in which the company filed for and
- Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $503,000 cost with an expected four-year life and an $11,000 salva
- Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $479,000 cost with an expected four-year life and an $11,000 salva
- The Tidwell Company is considering buying a new machine costing $18,000. Tidwell estimates that this machine will save $5,000 per year in cash operating expenses for the next five years. If the machine has no salvage value at the end of five years, comput
- A company is considering replacing an old piece of machinery, which cost $600,000 and has $350,000 of accumulated depreciation to date, with a new machine that has a purchase price of $545,000. The ol
Explore our homework questions and answers library
Browse
by subject