14) Consider an equipment purchase of $140,000 today (n=0) that will be put into operation in its 3rd year (n=3). The equipment is expected to be operational for 10 years. In just under 6 years from today (n=6), the equipment will require an overhaul costing $40,000. Using the CCA method (50% rule applies to both equipment and overhaul) and assuming a CCAequipment rate of 30% and CCAoverhaul rate of 20 %, what is CCA9 (the CCA for period n=9)? (Rounded up/down to the nearest dollar figure) a) 9,808 b) 10,008 c) 10,208 d) 10,408 e) 10,608 Yr. 3 Eya 9 36,75)(.7)(14on) + '(4ou) Bz

14) Consider an equipment purchase of $140,000 today (n=0) that will be put into operation in its 3rd year (n=3). The equipment is expected to be operational for 10 years. In just under 6 years from today (n=6), the equipment will require an overhaul costing $40,000. Using the CCA method (50% rule applies to both equipment and overhaul) and assuming a CCAequipment rate of 30% and CCAoverhaul rate of 20 %, what is CCA9 (the CCA for period n=9)? (Rounded up/down to the nearest dollar figure) a) 9,808 b) 10,008 c) 10,208 d) 10,408 e) 10,608 Yr. 3 Eya 9 36,75)(.7)(14on) + '(4ou) Bz

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 9P

See similar textbooks

Similar questions

Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $420,000 and will generate $95,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further Instructions on internal rate of return in Excel, see Appendix C.
Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer’s base price is $1,080,000, and it would cost another $22,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $605,000. The MACRS rates for the first 3 years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $15,500. The sprayer would not change revenues, but it is expected to save the firm $380,000 per year in before-tax operating costs, mainly labor. Campbell’s marginal tax rate is 35%. What is the Year-0 cash flow? What are the net operating cash flows in Years 1, 2, and 3? What is the additional Year-3 cash flow (i.e., the after-tax salvage and the return of working capital)? If the project’s cost of capital is 12%, should the machine be purchased?
REPLACEMENT ANALYSIS St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings from 24,000 to 46,000 per year. The new machine will cost 80,000, and it will have an estimated life of 8 years and no salvage value. The new riveting machine is eligible for 100% bonus depreciation at the time of purchase. The applicable corporate tax rate is 25%, and the firms WACC is 10%. The old machine has been fully depreciated and has no salvage value. Should the old riveting machine be replaced by the new one? Explain your answer.
Net present value method for a service company Coast-to-Coast Inc. is considering the purchase of an additional delivery vehicle for 70,000 on January 1, 20Y1. The truck is expected to have a five-year life with an expected residual value of 15,000 at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be 65,000 per year for each of the next five years. A driver will cost 40,000 in 20Y1, with an expected annual salary increase of 2,000 for each year thereafter. The annual operating costs for the truck are estimated to be 6,000 per year. a. Determine the expected annual net cash flows from the delivery truck investment for 20Y120Y5. b. Compute the net present value of the investment, assuming that the minimum desired rate of return is 12%. Use the present value table appearing in Exhibit 2 of this chapter. c. Is the additional truck a good investment based on your analysis? Explain.