Answered: Cost of the equipment $146,000…

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter14: Security Structures And Determining Enterprise Values

Section: Chapter Questions

Problem 8EP

See similar textbooks

Cost of the equipment	$146,000
Reduced annual labor costs	$45,000
Estimated life of equipment	10 years
Terminal disposal value	$0
After-tax cost of capital	8%
Tax rate	28%

Similar questions

Estimate the average total estimated useful life of depreciable property, plant, and equipment. Starbucks reports 580.6 million of depreciation and amortization in the statement of cash flows, of which 4.5 million relates to amortization of limited-life intangible assets. Does the estimate reconcile with stated accounting policy on useful lives for property, plant, and equipment? Explain.
Susquehanna Company purchased an asset at the beginning of the current year for 250,000. The estimated residual value is 25,000. Susquehanna estimates that the asset will be used for 10 years and uses straight-line depreciation. Calculate the depreciation expense per year.
Cost of the equipment $146,000 Reduced annual labor costs $45,000 Estimated life of equipment 10 years Terminal disposal value $0 After-tax cost of capital 8% Tax rate 28% Assume depreciation is calculated on a straight-line basis for tax purposes. Assume all cash flows occur at year-end except for initial investment amounts. 1. Calculate (a) net present value, (b) payback period, (c) discounted paybackperiod, and (d) internal rate of return. 2. Compare and contrast the capital budgeting methods in requirement 1.
Harper Corporation has the following information about the purchase of a new piece of equipment: Cash revenues less cash expenses $50,000 per year Cost of equipment $130,000 Salvage value at the end of the 8th year $22,000 Increase in working capital requirements $35,000 Tax rate 25 percent Life 8 years The cost of capital is 13 percent. Required: Calculate the following assuming that depreciation expense is $24,000, $21,000, $18,000, $15,000, $12,000, $9,000, $6,000 and $3,000 for…
Upper Division of Lower Company acquired an asset with a cost of $560,000 and a four-year life. The cash flows from the asset, considering the effects of inflation, were scheduled as follows. Year Cash Flow 1 $ 205,000 2 270,000 3 290,000 4 315,000 The cost of the asset is expected to increase at a rate of 10 percent per year, compounded each year. Performance measures are based on beginning-of-year gross book values for the investment base. Ignore taxes. Required: a. What is the ROI for each year of the asset's life, using a historical cost approach? (Enter your answers as a percentage rounded to 1 decimal place (i.e., 32.1).) b. What is the ROI for each year of the asset's life if both the investment base and depreciation are determined by the current cost of the asset at the start of each year? (Enter your answers as a percentage rounded to 1 decimal place (i.e., 32.1).)
Harper Corporation has the following information about the purchase of a new piece of equipment: Cash revenues less cash expenses $50,000 per year Cost of equipment $130,000 Salvage value at the end of the 8th year $22,000 Increase in working capital requirements $35,000 Tax rate 25 percent Life 8 years The cost of capital is 13 percent. Required: Calculate the following assuming straight-line depreciation: Calculate the accrual accounting rate of return on original investment for…
Upper Division of Lower Company acquired an asset with a cost of $580,000 and a four-year life. The cash flows from the asset, considering the effects of inflation, were scheduled as follows. Year Cash Flow 1 $ 210,000 2 250,000 3 285,000 4 320,000 The cost of the asset is expected to increase at a rate of 20 percent per year, compounded each year. Performance measures are based on beginning-of-year gross book values for the investment base. Ignore taxes. Required: a. What is the ROI for each year of the asset's life, using a historical cost approach? b. What is the ROI for each year of the asset's life if both the investment base and depreciation are determined by the current cost of the asset at the start of each year?
21-30 New equipment purchase, income taxes. Walker Inc. is considering the purchase of new equipment that will automate production and thus reduce labor costs. Walker made the following estimates related to the new machinery: Cost of the equipment $120,000 Reduced annual labor costs $40,000 Estimated life of equipment 5 years Terminal disposal value $0 After-tax cost of capital 8% Tax rate 25% Assume depreciation is calculated on a straight-line basis for tax purposes. Assume all cash flows occur at year-end except for initial investment amounts. 1. Calculate (a) net present value, (b) payback period, (c) discounted payback period, and (d) internal rate of return. 2. Compare and contrast the capital budgeting methods in requirement 1.
Harper Corporation has the following information about the purchase of a new piece of equipment: Cash revenues less cash expenses $50,000 per yearCost of equipment $130,000Salvage value at the end of the 8 th year $22,000Increase in working capital requirements $35,000Tax rate 25 percentLife 8 years The cost of capital is 13 percent. Required:a. Calculate the following assuming straight-line depreciation:i. Calculate the after-tax net income for each of the eight years.ii. Calculate the after-tax cash flows for each of the eight years.iii. Calculate the after-tax payback period.iv. Calculate the accrual accounting rate of return on original investment for each of the eightyears.v. Calculate the net present value (NPV).vi. Calculate the internal rate of return (IRR). b. Calculate the following assuming that depreciation expense is $24,000, $21,000, $18,000,$15,000, $12,000, $9,000, $6,000 and $3,000 for years 1 through 8, respectively:i. Calculate the after-tax cash flows for each of…
Andronicus Corporation (AC) has the following jumbled information about an investment proposal: Revenues in each of years 1–4 = $37,000 Year 0 initial investment = $57,000 Inventory level = $18,500 in year 1, $20,700 in year 2, and $13,500 in year 3 Production costs = $12,100 in each of years 1–4 Salvage value = $13,700 in year 4 Depreciation = 100% immediate bonus depreciation Tax rate = 21% There is an additional 6-month lag for all cash flows after year 0. For example, customers pay consistently with a 6-month lag, as AC does for production costs, taxes, etc. Draw up a set of cash flow forecasts as in Table 6.4. If the cost of capital is 10%, what is the project’s NPV? Assume that, if the project generates losses, those losses can be used to offset profits for tax purposes elsewhere in the business.
Net Cash Flow Year Processing Mill Electric Shovel 1 $310,000 $330,000 2 260,000 325,000 3 260,000 325,000 4 260,000 320,000 5 180,000 6 130,000 7 120,000 8 120,000 The estimated residual value of the processing mill at the end of Year 4 is $280,000. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of 15%. Use the present value table appearing above. If required, round to the nearest dollar. Processing Mill Electric Shovel Present value…
Harper Corporation has the following information about the purchase of a new piece of equipment: Cash revenues less cash expenses $50,000 per year Cost of equipment $130,000 Salvage value at the end of the 8th year $22,000 Increase in working capital requirements $35,000 Tax rate 25 percent Life 8 years The cost of capital is 13 percent. Required: Calculate the following assuming straight-line depreciation: Calculate the after-tax payback period.

SEE MORE QUESTIONS

Recommended textbooks for you

Entrepreneurial Finance

Finance

ISBN:

9781337635653

Author:

Leach

Publisher:

Cengage

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

Intermediate Accounting: Reporting And Analysis

Accounting

ISBN:

9781337788281

Author:

James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:

Cengage Learning

Entrepreneurial Finance

Finance

ISBN:

9781337635653

Author:

Leach

Publisher:

Cengage

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

Intermediate Accounting: Reporting And Analysis

Accounting

ISBN:

9781337788281

Author:

James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:

Cengage Learning

SWFT Comprehensive Volume 2019

Accounting

ISBN:

9780357233306

Author:

Maloney

Publisher:

Cengage

Financial Reporting, Financial Statement Analysis…

Finance

ISBN:

9781285190907

Author:

James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:

Cengage Learning

College Accounting, Chapters 1-27 (New in Account…

Accounting

ISBN:

9781305666160

Author:

James A. Heintz, Robert W. Parry

Publisher:

Cengage Learning

SEE MORE TEXTBOOKS

1.	Calculate (a) net present value, (b) payback period, (c) discounted paybackperiod, and (d) internal rate of return.
2.	Compare and contrast the capital budgeting methods in requirement 1.