The sprayer's base price is $900,000, and it would cost another $21,000 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $510,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $15,500. The sprayer would not change revenues, but it is expected to save the firm $348,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar.

The sprayer's base price is $900,000, and it would cost another $21,000 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $510,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $15,500. The sprayer would not change revenues, but it is expected to save the firm $348,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter8: Cost Analysis

Section: Chapter Questions

Problem 2E

See similar textbooks

Similar questions

Julie’s Bakeshop bought a loaf bread machine for P500,000 on June 1, 2010. It is estimated that it will have a useful life of 10 years, a scrap value of P10,000, production of 400,000 loaves of bread and working hours of 150,000. The company uses the machine for 15,000 hours in 2010 and 20,000 hours in 2011. The machine produces 40,000 loaves in 2010 and 50,000 loaves in 2011. Compute the depreciation in 2011 using (a) output method (b) working hours/service method.
You're evaluating a new electron microscope for the QA (quality assurance) unit. The microscope will cost $22,000 to buy and another $2,000 to install, and will be sold for $1,800 after 3 years. It falls into the 3-year MACRS class, with depreciation rates as follows: Year 1 2 3 4 Depreciation rate 33% 45% 15% 7% The microscope will require an inventory of spare parts worth $5,000. The equipment will not increase revenue, but will save the company $13,000 in labor costs each year. Your company's marginal tax rate (federal plus state) is 34% and the appropriate cost of capital for this project is 16%. What is the initial (year-0) incremental cash flow? Choose the right sign. What is the incremental cash flow in year 1? What is the incremental cash flow in year 2? What is the net salvage value at the end of year 3? What is the incremental cash flow in year 3? What is the NPV of this project?
ASAP Suppose a company has a forklift but is considering purchasing a new electric-lift truck that would cost $18,000, have operating costs of $1,000 in the first year, and have a salvage value of $10,000 at the end of the first year. For the remaining years, operating costs increase each year by 15% over the previous years operating costs. Similarly, the salvage value declines each year by 25% from the previous year's salvage value. The lift truck has a maximum life of three years. The firm's required rate of return is 15%. Find the economic service life of this new machine.
Green Management Company is consideringthe acquisition of a new eighteen-wheeler.• The truck’s base price is $80,000, and it will costanother $20,000 to modify it for special use by thecompany.• This truck falls into the MACRS five-year class. Itwill be sold after three years for $30,000.• The truck purchase will have no effect on revenues, but it is expected to save the firm $45,000per year in before-tax operating costs, mainly inleasing expenses.• The firm’s marginal tax rate (federal plus state) is40%, and its MARR is 15%.(a) Is this project acceptable, based on the mostlikely estimates given in the problem?(b) If the truck’s base price is $95,000, what wouldbe the required savings in leasing so that the project would remain profitable?
New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $830,000, and it would cost another $22,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $485,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $17,500. The sprayer would not change revenues, but it is expected to save the firm $351,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. What is the Year-0 net cash flow? $ What are the net operating cash flows in Years 1, 2, and 3? Year 1: $ Year 2: $ Year 3: $ What…
Nova-Norda Industries is considering an expansion. The necessary equipment would be purchased for 5 million dollars. The shipment charges for the equipment is estimated to be $200,000. The firm needs an additional 2 million dollars in working capital, of which $500,000 will be financed with Accounts Payable.The firm spent 100,000 dollars on research related to the project, last year. The firm owns a building and plans to use the building for the project. The building could be sold for 2 million dollars after taxes. What is the initial investment outlay?
A stamping machine is classified as seven-year MACRS property. The costbasis for the machine is $120,000, and the expected salvage value is $10,000 at the end of 12 years. Compute the book value at the end of three years for tax purposes.
A firm is considering purchasing a machinethat costs $65,000. It will be used for six years, andthe salvage value at that time is expected to be zero.The machine will save $35,000 per year in labor, butit will incur $12,000 in operating and maintenancecosts each year. The machine will be depreciatedaccording to five-year MACRS. The firm’s tax rateis 40%, and its after-tax MARR is 15%. Should themachine be purchased?
A builder paid $120,000 for a house and lot. The value of the land was appraised at $65,000, and the value of the house at $55,000. The house was then torn down at an additional cost of $8,000 so that a warehouse could be built on the lot at a cost of $50,000. What is the total value of the property with the warehouse? For depreciation purposes, what is the cost basis for the warehouse?
Compute the interest paid on a 3-year lease for a $26,738 car if the annual rate of depreciation is 16% and the lease's annual interest rate is 4.8%. Round your answer to the nearest dollar.
A consumer electronics company was formed to sell a portable handset system. The company purchased a warehouse and converted it into a manufacturing plant for $2,000,000 (including the purchase price of the warehouse). It completed the installation of assembly equipment worth $1,500,000 on December 3l. The plant began operation on January 1. The company had a gross income of $2,500,000 for the calendar year. Manufacturing costs and all operating expenses, excluding the capital expenditures, were $1,280,000. The depreciation expenses for capital expenditures amounted to $128,000.(a) Compute the taxable income of this company.(b) How much will the company pay in federal income taxes for the year?
A company considers introducing a new newspaper. Its direct competitor charges $0.25 at retail. The fixed cost charges to be $350,000 per month. The variable cost is $0.08 per copy, but advertising revenues of $0.05 per paper will be generated. To print the morning paper, the publisher has to purchase a new printing press, which will cost $620,000. The press machine will be depreciated according to a seven-year MACRS class. The press machine will be used for 10 years, at which time its salvage value would be about $100,000. Assume 365 issues per year, a 27% tax rate, and a 13% MARR. How many copies per day must be sold to break even at a retail selling price of $0.20 per paper?