N9.Account 22-30. NEW EQUIPMENT PURCHASE, INCOME TAXES. Captain Inc.is considering the purchase of new equipment that will automateproduction and thus reduce labor costs. Captain made the followingestimates related to the new machinery:Cost of the equipmentReduced annual labor costsEstimated life of equipmentTerminal disposal valueAfter-tax cost of capitalTax rate$ 128,000$ 35,00010 years08%30%SAssume depreciation is calculated on a straight-line basis for taxpurposes. Assume all cash flows occur at year-end except for initialinvestment amounts.Required1. 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 inrequirement 1.

Capital budgeting refers to the methods used for estimating the viability of the projects using…

Answered: Required 1. Calculate (a) net present…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 1PROB

See similar textbooks

Similar questions

Differential analysis report for machine replacement proposal Catalina Tooling Company is considering replacing a machine that has been used in its factory for two years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows: Annual nonmanufacturing operating expenses and revenue are not expected to be affected by the purchase of the new machine. Instructions List other factors that should be considered before a final decision is reached.
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.
Walker Inc. is considering the purchase of new equipmentthat will automate production and thus reduce labor costs. Walker made the following estimatesrelated to the new machinery: Cost of the equipment $120,000Reduced annual labor costs $40,000Estimated life of equipment 5 yearsTerminal disposal value $0After-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 atyear-end except for initial investment amounts. Q. Calculate net present value?
Walker Inc. is considering the purchase of new equipmentthat will automate production and thus reduce labor costs. Walker made the following estimatesrelated to the new machinery: Cost of the equipment $120,000Reduced annual labor costs $40,000Estimated life of equipment 5 yearsTerminal disposal value $0After-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 atyear-end except for initial investment amounts. Q. Calculate payback period?
Equipment associated with manufacturing small railcars had a first cost of $250,000 with an expected salvage value of $30,000 at the end of its 5-year life. The revenue was $640,000 in year 2, with operating expenses of $98,000. If the company’s effective tax rate was 34%, what would be the difference in taxes paid in year 2 if the depreciation method were straight line instead of Modified Accelerated Cost Recovery System (MACRS)? The MACRS depreciation rate for year 2 is 32%.
35.During 2021, King Co. incurred the following costs: Testing in search for process alternatives 720,000 Costs of testing prototype and design modifications 500,000 Modification of the formulation of a process 1,220,000 Research and development services performed by Queen Corp. for King 650,000 In King's 2021 statement of profit or loss, research and development expense should be 1,220,000 1,870,000 2,590,000 3,090,000
B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $408,000 and has a 12-year life and no salvage value. The expected annual income for each year from this equipment follows. Sales of new product $ 255,000 Expenses Materials, labor, and overhead (except depreciation) 136,000 Depreciation—Equipment 34,000 Selling, general, and administrative expenses 25,500 Income $ 59,500 (a) Compute the annual net cash flow.(b) Compute the payback period.(c) Compute the accounting rate of return for this equipment
. Milby company incurred the following research and development costs during the current year: Equipment purchased for current and future projects 150,000Equipment purchased for current project only 300,000Research and development salaries of current project 600,000Legal fees to obtain patent 75,000 Material and labor costs for prototype product 900,000 The equipment has a five-year useful life and is depreciated using the straight line method. What total amount should be recognized as research and development expense for current year?

Recommended textbooks for you

EBK CFIN

Finance

ISBN:

9781337671743

Author:

BESLEY

Publisher:

CENGAGE LEARNING - CONSIGNMENT

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Survey of Accounting (Accounting I)

Accounting

ISBN:

9781305961883

Author:

Carl Warren

Publisher:

Cengage Learning

EBK CFIN

Finance

ISBN:

9781337671743

Author:

BESLEY

Publisher:

CENGAGE LEARNING - CONSIGNMENT

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Survey of Accounting (Accounting I)

Accounting

ISBN:

9781305961883

Author:

Carl Warren

Publisher:

Cengage Learning

SWFT Comprehensive Volume 2019

Accounting

ISBN:

9780357233306

Author:

Maloney

Publisher:

Cengage

SEE MORE TEXTBOOKS

Required 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.