Nine Point Industries has $39,000,000 in equipment that has a 15 year class life. The equipment is 3 years old. The firm is selling the equipment for $13,000,000. The firm uses simplified straight line depreciation (zero salvage value) and has a marginal tax rate of 34%. What is the terminal cash flow? Assume no working capital. Set your calculator to 4 decimal places and round to a whole number at the end. For example, if your answer is 1,000 enter it as 1000. DO NOT ENTER THE DOLLAR SIGN.

Nine Point Industries has $39,000,000 in equipment that has a 15 year class life. The equipment is 3 years old. The firm is selling the equipment for $13,000,000. The firm uses simplified straight line depreciation (zero salvage value) and has a marginal tax rate of 34%. What is the terminal cash flow? Assume no working capital. Set your calculator to 4 decimal places and round to a whole number at the end. For example, if your answer is 1,000 enter it as 1000. DO NOT ENTER THE DOLLAR SIGN.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 21EA: Cinemar Productions bought a piece of equipment for $55,898 that will last for 5 years. The...

See similar textbooks

Similar questions

Taos Productions bought a piece of equipment for $79,860 that will last for 5 years. The equipment will generate net operating cash flows of $20,000 per year and will have no salvage value at the end of its life. What is the internal rate of return?
Cinemar Productions bought a piece of equipment for $55,898 that will last for 5 years. The equipment will generate net operating cash flows of $14,000 per year and will have no salvage value at the end of its life. What is the internal rate of return?
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?
Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required: 1. Patz Corporation is considering the purchase of a computer-aided manufacturing system. The cash benefits will be 800,000 per year. The system costs 4,000,000 and will last eight years. Compute the NPV assuming a discount rate of 10 percent. Should the company buy the new system? 2. Sterling Wetzel has just invested 270,000 in a restaurant specializing in German food. He expects to receive 43,470 per year for the next eight years. His cost of capital is 5.5 percent. Compute the internal rate of return. Did Sterling make a good decision?
The Berndt Corporation expects to have sales of 12 million. Costs other than depreciation are expected to be 75% of sales, and depreciation is expected to be 1.5 million. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. Berndts federal-plus-state tax rate is 40%. Berndt has no debt. a. Set up an income statement. What is Berndts expected net income? Its expected net cash flow? b. Suppose Congress changed the tax laws so that Berndts depreciation expenses doubled. No changes in operations occurred. What would happen to reported profit and to net cash flow? c. Now suppose that Congress changed the tax laws such that, instead of doubling Berndts depreciation, it was reduced by 50%. How would profit and net cash flow be affected? d. If this were your company, would you prefer Congress to cause your depreciation expense to be doubled or halved? Why?
Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $17 million, and production and sales will require an initial $5 million investment in net operating working capital. The company’s tax rate is 25%. What is the initial investment outlay? The company spent and expensed $150,000 on research related to the new product last year. What is the initial investment outlay? Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. What is the initial investment outlay?
Talbot Industries is considering launching a new product. The new manufacturing equipment will cost 17 million, and production and sales will require an initial 5 million investment in net operating working capital. The companys tax rate is 40%. a. What is the initial investment outlay? b. The company spent and expensed 150,000 on research related to the new product last year. Would this change your answer? Explain. c. Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for 1.5 million after taxes and real estate commissions. How would this affect your answer?
The Moore Corporation has operating income (EBIT) of 750,000. The companys depreciation expense is 200,000. Moore is 100% equity financed, and it faces a 40% tax rate. What is the companys net income? What is its net cash flow?
Blue Company, is trying to assess the feasibility of acquiring an accounting system for $10,000,000. The system is expected to reduce its salary cash expense by $2,000,000 per year. The system has a five-year life, it will be depreciated on a straight-line basis with no salvage value. Cost of capital is 15%. It is subject to 30% tax. (Present value factors should be rounded to four decimal places.)- What is the approximate internal rate of return of the investment? - What is the payback period of the investment?
Blue Company, is trying to assess the feasibility of acquiring an accounting system for $10,000,000. The system is expected to reduce its salary cash expense by $2,000,000 per year. The system has a five-year life, it will be depreciated on a straight-line basis with no salvage value. Cost of capital is 15%. It is subject to 30% tax. (Present value factors should be rounded to four decimal places. - What is the book rate of return of the investment based on average investment.
Blue Company, is trying to assess the feasibility of acquiring an accounting system for $10,000,000. The system is expected to reduce its salary cash expense by $2,000,000 per year. The system has a five-year life, it will be depreciated on a straight-line basis with no salvage value. Cost of capital is 15%. It is subject to 30% tax. (Present value factors should be rounded to four decimal places.)- What is the net present value of the investment. (Round to the nearest whole dollar.) - What is the profitability index of the investment. (Round to two decimal places)