estimated cash flows before tax (CFBT) are? 10,000; 11,000; 14,000; 15,000 and v machinery. The project will cost 50,000 with life of 5 years and no salvage value. Question. 3. A company is considering an investment proposal to install a new tey rate of the company is 55% and it uses straight line method of depreciation. The 25,000 during years 1,2,3,4 and 5 respectively. Compute : (i) Average rate of return. (ii) NPV at 10% discount rate. (iii) Profitability Index at 10% discount rate. Note : Discount factors at 10% are 0.909, 0.826, 0.751, 0.683 and 0.621 for the

estimated cash flows before tax (CFBT) are? 10,000; 11,000; 14,000; 15,000 and v machinery. The project will cost 50,000 with life of 5 years and no salvage value. Question. 3. A company is considering an investment proposal to install a new tey rate of the company is 55% and it uses straight line method of depreciation. The 25,000 during years 1,2,3,4 and 5 respectively. Compute : (i) Average rate of return. (ii) NPV at 10% discount rate. (iii) Profitability Index at 10% discount rate. Note : Discount factors at 10% are 0.909, 0.826, 0.751, 0.683 and 0.621 for the

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 2P

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The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
Montello Inc. purchases a delivery truck for $25,000. The truck has a salvage value of $6,000 and is expected to be driven for 125,000 miles. Montello uses the units-of-production depreciation method, and in year one it expects to use the truck for 26,000 miles. Calculate the annual depreciation expense.
Montello Inc. purchases a delivery truck for $25,000. The truck has a salvage value of $6,000 and is expected to be driven for 125,000 miles. Montello uses the units-of-production depreciation method, and in year one the company expects the truck to be driven for 26,000 miles; in year two, 30,000 miles; and in year three, 40,000 miles. Consider how the purchase of the truck will impact Montellos depreciation expense each year and what the trucks book value will be each year after depreciation expense is recorded.
Utica Machinery Company purchases an asset for 1,200,000. After the machine has been used for 25,000 hours, the company expects to sell the asset for 150,000. What is the depreciation rate per hour based on activity?
Referring to PA7 where Kenzie Company purchased a 3-D printer for $450,000, consider how the purchase of the printer impacts not only depreciation expense each year but also the assets book value. What amount will be recorded as depreciation expense each year, and what will the book value be at the end of each year after depreciation is recorded?
Colquhoun International purchases a warehouse for $300,000. The best estimate of the salvage value at the time of purchase was $15,000, and it is expected to be used for twenty-five years. Colquhoun uses the straight-line depreciation method for all warehouse buildings. After four years of recording depreciation, Colquhoun determines that the warehouse will be useful for only another fifteen years. Calculate annual depreciation expense for the first four years. Determine the depreciation expense for the final fifteen years of the assets life, and create the journal entry for year five.
Alfredo Company purchased a new 3-D printer for $900,000. Although this printer is expected to last for ten years, Alfredo knows the technology will become old quickly, and so they plan to replace this printer in three years. At that point, Alfredo believes it will be able to sell the printer for $15,000. Calculate yearly depreciation using the double-declining-balance method.