Calculating initial investment DuPree Coffee Roasters, Inc., wishes to expand and modernize its facilities. The installed cost of a proposed computer-controlled automatic-feed roaster will be $127,000. The firm has a chance to sell its 3-year-old roaster for $34,900. The existing roaster originally cost $60,800 and was being depreciated using MACRS and a 7-year recovery period (see the table E). DuPree is subject to a 40% tax rate. a. What is the book value of the existing roaster? b. Calculate the after-tax proceeds of the sale of the existing roaster. c. Calculate the change in net working capital using the following figures: O Data Table Anticipated Changes in Current Assets and Current Liabilities (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Accruals Inventory Accounts payable Accounts receivable Cash - $19,000 + 50,600 + 39,200 + 70,200 Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year 5 years 7 years Recovery year 3 years 33% 45% a. The remaining book value of the existing roaster is $. (Round to the nearest dollar.) 10 years 20% 14% 10% 32% 19% 12% b. The after-tax proceeds of the sale of the existing roaster will be $. (Round to the nearest dollar.) 2 25% 18% 3 15% 18% 14% c. The change in net working capital will be $. (Round to the nearest dollar.) 4 7% 12% 12% 5 12% 9% 9% d. The initial investment associated with the proposed new roaster will be $. (Round to the nearest dollar. ) 5% 9% 8% 7% 6% 6% 9% 8 4% 9 10 6% 11 4% Totals 100% 100% 100% 100% *These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year convention.
Calculating initial investment DuPree Coffee Roasters, Inc., wishes to expand and modernize its facilities. The installed cost of a proposed computer-controlled automatic-feed roaster will be $127,000. The firm has a chance to sell its 3-year-old roaster for $34,900. The existing roaster originally cost $60,800 and was being depreciated using MACRS and a 7-year recovery period (see the table E). DuPree is subject to a 40% tax rate. a. What is the book value of the existing roaster? b. Calculate the after-tax proceeds of the sale of the existing roaster. c. Calculate the change in net working capital using the following figures: O Data Table Anticipated Changes in Current Assets and Current Liabilities (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Accruals Inventory Accounts payable Accounts receivable Cash - $19,000 + 50,600 + 39,200 + 70,200 Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year 5 years 7 years Recovery year 3 years 33% 45% a. The remaining book value of the existing roaster is $. (Round to the nearest dollar.) 10 years 20% 14% 10% 32% 19% 12% b. The after-tax proceeds of the sale of the existing roaster will be $. (Round to the nearest dollar.) 2 25% 18% 3 15% 18% 14% c. The change in net working capital will be $. (Round to the nearest dollar.) 4 7% 12% 12% 5 12% 9% 9% d. The initial investment associated with the proposed new roaster will be $. (Round to the nearest dollar. ) 5% 9% 8% 7% 6% 6% 9% 8 4% 9 10 6% 11 4% Totals 100% 100% 100% 100% *These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year convention.
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
10th Edition
ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter12: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 11P: REPLACEMENT ANALYSIS St. Johns River Shipyards is considering the replacement of an 8-year-old...
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Transcribed Image Text:Calculating initial investment DuPree Coffee Roasters, Inc., wishes to expand and modernize its facilities. The installed cost of a proposed computer-controlled automatic-feed roaster will be $127,000. The firm has a chance to sell its 3-year-old
roaster for $34,900. The existing roaster originally cost $60,800 and was being depreciated using MACRS and a 7-year recovery period (see the table E). DuPree is subject to a 40% tax rate.
a. What is the book value of the existing roaster?
b. Calculate the after-tax proceeds of the sale of the existing roaster.
c. Calculate the change in net working capital using the following figures:
Data Table
Anticipated Changes in Current Assets and
Current Liabilities
(Click on the icon located on the top-right corner of the data table below in order to copy its contents into a
-$19,000
+ 50,600
+ 39,200
+ 70,200
Accruals
spreadsheet.)
Inventory
Accounts payable
Rounded Depreciation Percentages by Recovery Year Using MACRS for
First Four Property Classes
Accounts receivable
Percentage by recovery year*
5 years
Cash
a. The remaining book value of the existing roaster is $
(Round to the nearest dollar.)
Recovery year
3 years
7 years
10 years
1
33%
20%
14%
10%
b. The after-tax proceeds of the sale of the existing roaster will be $. (Round to the nearest dollar.)
2
45%
32%
25%
18%
3
15%
19%
18%
14%
c. The change in net working capital will be $. (Round to the nearest dollar.)
4
7%
12%
12%
12%
12%
9%
9%
d. The initial investment associated with the proposed new roaster will be $
(Round to the nearest dollar.)
6
5%
9%
8%
7
9%
7%
8
4%
6%
6%
10
6%
11
4%
Totals
100%
100%
100%
100%
*These percentages have been rounded to the nearest whole percent to simplify calculations while
retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual
unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year
convention.
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