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- You are evaluating a project that will require an investment of $15 million that will be depreciated over a period of 19 years. You are concerned that the corporate tax rate will increase during the life of the project. Would this increase the accounting break-even point? Would it increase the NPV break-even point?Barbara Thompson is considering the purchase of a piece of business rental property containing stores and offices at a cost of $350,000. Barbara estimates that annual receipts from rentals will be $55,000 and that annual disbursements. other than income taxes, will be about $18,000. The property is expected to appreciate at the annual rate of 5%. Barbara expects to retain the property for 20 years once it is acquired. Then it will be depreciated on the basis of the 39-year real-property class (MACRS), assuming that the property would be placed in service on January 1. Barbara's marginal tax rate is 30%, and her MARR is 10%. What would be the minimum annual total of rental receipts that would make the investment break even?Suppose that new machines cost $504 and the value of marginal product of new machines is MPK = 246 - 6K, where K is the number of machines purchased. The depreciation rate of K is 15% and the dividend yield is 10%. What amount of K will you purchase?
- Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $ 40,000 2 30,000 3 20,000 4 10,000 Thereafter 0 Expenses are expected to be 40% of revenues, and working capital required in each year is expected to be 20% of revenues in the following year. The product requires an immediate investment of $45,000 in plant and equipment. Required: What is the initial investment in the product? Remember working capital. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm’s tax rate is 40%, what are the project cash flows in each year? If the opportunity cost of capital is 12%, what is project NPV? What is project IRR?Assume $60,000 is going to be invested in each of the following assets, using table 12-11 and table 12-12 indicate the dollar amount of the first years depreciation a.office furniture b:automobile c.electric and gas utility property d.sewage treatment plant1. Price-level adjustment may be accomplished by using specific price indexes as well as a general price-level index. One possibility is to use a weighted-average price index for the firm's own mix of assets. 'What are the dangers here? 2. Contrast financial capital maintenance with physical capital maintenance. 3. Why might it be said that both constant dollar and current cost income numbers under SFAS No. 33 are “disaggregated?”
- Fred’s Frisbees is trying to determine how many Frisbee pressing machines to buy for its new factory. The real price of a new pressing machine is 7600 Frisbees. The depreciation rate on these Frisbee presses is equal to 12% per year. The real interest rate is 10%. The expected future marginal product of these fabricating machines is given by the expression 5000 – 4K, measured in Frisbees. (a) What is the user cost of capital? (b) What is the profit-maximizing number of Frisbee presses for Fred’s to purchase for its new factory? (c) Before purchasing the machines Fred’s finds that it will be subject to a new tax of 60 percent on all its revenue. Now what is the profit maximizing number of machines for Fred’s to purchase?If K/N = 27 this year, and K/N = 30 last year, then saving is __ depreciation this year. greater than less than equal to twiceA crane rental company has acquired a new heavy-duty crane for $280,000. The company calculates depreciation on this equipment on the basis of number of rentals per year, and the salvage value of the crane at the end of its 12-year life is $40,000. If the crane is rented an average of 133 days per year, what is the depreciation rate per rental? The depreciation is per day of rent. (Round to the nearest dollar.)
- You buy an asset today for $200,000 that can be depreciated over three years in a straight line. What is the present value of the total depreciation tax shield over the life of the asset? Assume that the opportunity cost of capital is 5% and your tax rate is 37.5%. A. $68,076 B. $47,655 C. $22,693 D. $45,385If the value of depreciation should ever exceed that of gross private domestic investment, how would this affect the future productivity of the nation ?A builder paid $120,000 for a house and lot. The value of the land was appraised at $65,000, and the value of the house at $55,000. The house was then torn down at an additional cost of $8,000 so that a warehouse could be built on the lot at a cost of $50,000. What is the total value of the property with the warehouse? For depreciation purposes, what is the cost basis for the warehouse?