DeYoung Entertainment Enterprises is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model. The old machine has a book value of $450,000 and a remaining useful life of 5 years. The current machine would be worn out and worthless in 5 years, but DeYoung can sell it now to a Halloween mask manufacturer for $135,000. The old machine is being depreciated by $90,000 per year for each year of its remaining life. If DeYoung doesn't replace the old machine, it will have no salvage value at the end of its useful life. The new machine has a purchase price of $775,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $105,000. The applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. Being highly efficient, it is expected to economize on electric power usage, labor, and repair costs, and, most importantly, to reduce the number of defective chickens. In total, an annual savings of $185,000 will be realized if the new machine is installed. The company's marginal tax rate is 25%, and the project cost of capital is 12%. D: What are the total incremental project cash flows in Years 0 through 5? What is the NPV? Please show excel formulas - A-C was previously answered and shown below Tax 25% A: Initial Cash Flow NEW Machine $ 775,000 Salvage value of old machine 135000 Old Depreciation $ 90,000 Book Value 450000 5 Year Salvage $ 105,000 Total Gain -315000 Year 5 Depreciation Rate 5.76% Tax -78750 After Tax Value Old Machine 213750 Initial Cash Flow $561,250 Incremental depreciation Tax Shield Rates Depreciation of new Machine Incremental Depreciation Incremental Depreciation Tax Shield B: MACRS Rate Year 1 0.2 155000 65000 $ 16,250.00 MACRS Rate Year 2 0.32 248000 158000 $ 39,500.00 MACRS Rate Year 3 0.192 148800 58800 $ 14,700.00 MACRS Rate Year 4 0.1152 89280 -720 $ (180.00) MACRS Rate Year 5 0.1152 89280 -720 $ (180.00) C: After-Tax salvage value at Year 5 of New Machine Salvage Value $ 105,000 Book Value $ 44,640 Gain $ 60,360 Tax $ 15,090 After tax year 5 salvage rate $ 89,910

DeYoung Entertainment Enterprises is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model. The old machine has a book value of $450,000 and a remaining useful life of 5 years. The current machine would be worn out and worthless in 5 years, but DeYoung can sell it now to a Halloween mask manufacturer for $135,000. The old machine is being depreciated by $90,000 per year for each year of its remaining life. If DeYoung doesn't replace the old machine, it will have no salvage value at the end of its useful life. The new machine has a purchase price of $775,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $105,000. The applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. Being highly efficient, it is expected to economize on electric power usage, labor, and repair costs, and, most importantly, to reduce the number of defective chickens. In total, an annual savings of $185,000 will be realized if the new machine is installed. The company's marginal tax rate is 25%, and the project cost of capital is 12%. D: What are the total incremental project cash flows in Years 0 through 5? What is the NPV? Please show excel formulas - A-C was previously answered and shown below Tax 25% A: Initial Cash Flow NEW Machine $ 775,000 Salvage value of old machine 135000 Old Depreciation $ 90,000 Book Value 450000 5 Year Salvage $ 105,000 Total Gain -315000 Year 5 Depreciation Rate 5.76% Tax -78750 After Tax Value Old Machine 213750 Initial Cash Flow $561,250 Incremental depreciation Tax Shield Rates Depreciation of new Machine Incremental Depreciation Incremental Depreciation Tax Shield B: MACRS Rate Year 1 0.2 155000 65000 $ 16,250.00 MACRS Rate Year 2 0.32 248000 158000 $ 39,500.00 MACRS Rate Year 3 0.192 148800 58800 $ 14,700.00 MACRS Rate Year 4 0.1152 89280 -720 $ (180.00) MACRS Rate Year 5 0.1152 89280 -720 $ (180.00) C: After-Tax salvage value at Year 5 of New Machine Salvage Value $ 105,000 Book Value $ 44,640 Gain $ 60,360 Tax $ 15,090 After tax year 5 salvage rate $ 89,910

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 10P: St. Johns River Shipyards welding machine is 15 years old, fully depreciated, and has no salvage...

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The new machine has a purchase price of $775,000, an estimated useful life and

MACRS class life of 5 years, and an estimated salvage value of $105,000. The applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. Being highly efficient, it is expected to economize on electric power usage, labor, and repair costs, and, most importantly, to reduce the number of defective chickens. In total, an annual savings of $185,000 will be realized if the new machine is installed. The company's marginal tax rate is 25%, and the project cost of capital is 12%.

D: What are the total incremental project cash flows in Years 0 through 5? What is the NPV?

Please show excel formulas - A-C was previously answered and shown below

				Tax	25%
A:	Initial Cash Flow			NEW Machine	$ 775,000
	Salvage value of old machine	135000		Old Depreciation	$ 90,000
	Book Value	450000		5 Year Salvage	$ 105,000
	Total Gain	-315000		Year 5 Depreciation Rate	5.76%
	Tax	-78750
	After Tax Value Old Machine	213750

	Initial Cash Flow	$561,250

	Incremental depreciation Tax Shield	Rates	Depreciation of new Machine	Incremental Depreciation	Incremental Depreciation Tax Shield
B:		MACRS Rate Year 1	0.2	155000	65000	$ 16,250.00
		MACRS Rate Year 2	0.32	248000	158000	$ 39,500.00
		MACRS Rate Year 3	0.192	148800	58800	$ 14,700.00
		MACRS Rate Year 4	0.1152	89280	-720	$ (180.00)
		MACRS Rate Year 5	0.1152	89280	-720	$ (180.00)


C:	After-Tax salvage value at Year 5 of New Machine
		Salvage Value	$ 105,000
		Book Value	$ 44,640
		Gain	$ 60,360
		Tax	$ 15,090

		After tax year 5 salvage rate	$ 89,910


D:

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