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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?You are also considering another project that has a physical life of 3 years—that is, the machinery will be totally worn out after 3 years. However, if the project were terminated prior to the end of 3 years, the machinery would have a positive salvage value. Here are the project’s estimated cash flows: Using the 10% cost of capital, what is the project’s NPV if it is operated for the full 3 years? Would the NPV change if the company planned to terminate the project at the end of Year 2? At the end of Year 1? What is the project’s optimal (economic) life?An engineer is planning to purchase a CHB machine worth 180,000 that can produce a uniform annual revenue of 25,500 with a salvage value of 5,000 after 6 years. If the engineer is expecting to earn at least 15% of his capital, should he invest? Show your conclusion using: a.) using present worth method b.) future worth method. (SHOW THE SOLUTION AND DO NOT USE EXCEL).
- Krostel Company is planning to acquire a machine costing P 500,000 with a useful life of 3 years with a salvage value of P 20,000. This machine will generate annual cash savings of P 250,000. Income taxes are 20%. The company uses the SYD method for computing depreciation. What is the accounting rate of return on the average cost of investment? a. 27.7% b. 32.7% c. 61.5% d. 76.7%XYZ bought an asset that cost $200,000 at the beginning of the year. It has a salvage value of $30,000. The useful life of the asset is 10 years. If the company uses straight-line depreciation, what would depreciation be for the first year of the asset's life? Group of answer choices $30,000 $200,000 $17,000 $20,0002. A firm purchased a machine with a life of four years. Depreciating the machine using straight-line depreciation over the four years yields an NPV = -$10. The initial investment was $1000, cost of capital = 15%, and tax rate = 34%. If the firm is allowed to depreciate the machine under the MACRS 3-year class, what will be the new net present value? (Use MACRS table). Assume losses, if any, will save taxes on other operations of the company.
- You’re trying to determine whether or not to expand your business by building a new plant. The plant would cost $14m and be depreciated straight line to zero over four years. The net income is estimated as $1.741m, $1.628m, $1.301m and $1m. What is the project’s average accounting return (AAR)? You decide to implement new rules on depreciation. You recognise that the building housing the plant is increasing in value so that depreciation of $1m per year is appropriate. Does the AAR change? If you require a 20% AAR how is the project affected?3. An equipment with a price of P650,000, has an economic life of 5 years and a salvage value of P 150, 000. The cost of money is 12% per year. Compute the first year depreciation using the double Declining Balance Method.An asset cost $200,000. It has a salvage value of $40,000. It has a 10 year life. What is its depreciation expense if the company uses straight-line depreciation? Group of answer choices $200,000 $160,000 $20,000 $16,000
- An engineer is planning to purchase a CHB machine worth 180,000 that can produce a uniform annual revenue of 25,500 with a salvage value of 5,000 after 6 years. If the engineer is expecting to earn at least 15% of his capital, should he invest? Show your conclusion using present worth method and future worth method. SHOW THE SOLUTION AND DO NOT USE EXCEL.A manufacturing company is planning to install an equipment having a first cost of $90Kand a salvage value, after 15 years, of $10,520. The company uses an interest rate of 10%.Find the PW of the depreciation deductions for straight-line, SOYD, double-decliningbalance. Rank the strategies in order of their attractiveness. Identify/determine the bestmethod.A depreciable asset has a cost of P120,000, estimated useful life of 8 years, and an estimated residual value of P20,000.1. What is the depreciation rate if you are using the straight line method?2. What is the depreciation rate if you are using 150% declining balance method?3. What is the depreciation rate if you are using double declining balance method?Note: For nos. 1 to 3, the rate must be rounded off to two decimal places. Ex: 10.00%, 12.30%, 15.55%4. What is the depreciation rate if you are using the declining balance method?Note: For no. 4, the rate must be rounded off to 6 decimal places. Ex: 10.123456%5. Using SYD method, what is the depreciation expense for the 1st year?6. Using SYD method, what is the carrying amount at the end of the 6th year?7. Using double declining balance method, what is the carrying amount at the end of the 3rd year? Subparts 6-7only
