Two alternative machines (A and B) have been suggested each costing 4,50,000. Cash Question. 2. The XYZ Co. Ltd. is considering the purchasé of a new machine. Flow After Tax (CFAT) are expected to be as follows : Cash Flow After Tax Year Machine A (7) Machine B (7) 1 40,000 1,20,000 1,20,000 1,60,000 3 1,60,000 2,00,000 4 2,40,000 1,20,000 1,60,000 80,000 The company has a target of return on capital of 10 percent and on this basis you are required to compare the profitability of the machines and state which alternative you consider financially perferable.

Two alternative machines (A and B) have been suggested each costing 4,50,000. Cash Question. 2. The XYZ Co. Ltd. is considering the purchasé of a new machine. Flow After Tax (CFAT) are expected to be as follows : Cash Flow After Tax Year Machine A (7) Machine B (7) 1 40,000 1,20,000 1,20,000 1,60,000 3 1,60,000 2,00,000 4 2,40,000 1,20,000 1,60,000 80,000 The company has a target of return on capital of 10 percent and on this basis you are required to compare the profitability of the machines and state which alternative you consider financially perferable.

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

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 2E

See similar textbooks

Similar questions

123 Systems located in Alabama expects a 9% after-tax rate of return on an equipment investment. The state tax rate is 6%. If the company is in the 34% federal tax bracket, estimate the before-tax rate of return required. A. 11.36% B. 13.80% C. 13% D. 14.51%
A company is evaluating the addition of equipment to its present operations. They need to purchase equipment for $160,000. The five year MACRS GDS Recovery Method is appropriate for the investment and the total tax rate (federal plus state) is 40%. Gross revenue is expected to be $30,000/year while maintenance costs are expected to be $5,000/year. It is expected that the operation will be shut down at the end of the fourth year with a salvage value of $20,000. a- Draw a BTCFD b- Prepare a table showing your development of the ATCF's. c- If the company's aftertax MARRis 12%/year, is this a profitable investment?
The first cost of a machine is P1,800,000 with a salvage value of P300,000 at the end of its life of 5 years. Determine the total depreciation after 3 years. Constant Percentage Method ans:P1,185,769.76
The first cost of a machine is P1,800,000 with a salvage value of P300,000 at the end of its life of 5 years. Determine the total depreciation after 3 years. USE Using Straight Line Method ans: 900000
Ederly Quarry sells a wide variety of cut limestone for residential and commercial building construction. A recent quarry expansion cost $2.9 millionand added an estimated 100,000 tons of reserves. (a) Estimate the cost depletion allowance for the next 5 years for these new reserves, using theprojections made by John Ederly. (b) Will the depletion charge be limited in any year due to restrictions placed on the cost depletion method?
A company bought a new machine fot $300,000. The new machine generated revenue for $90,000 per year. Operating cost of that machine is $10,000 per year. The machine is depreciated according to 7-years MACRS method. The machine is sold for $80,000 in the middle of 6th year of service. Determine the after tax net present worth. Assume, the after-tax MARR is 10% and income tax rate is 25% (federal and state combined). dont use excel
During its current tax year (year one), a pharmaceutical company purchased a mixing tank that had a fair market price of $125,000. It replaced an older, smaller mixing tank that had a BV of $20,000. Because a special promotion was underway, the old tank was used as a trade-in for the new one, and the cash price (including delivery and installation) was set at $102,000. The MACRS class life for the new mixing tank is 9.5 years. Under the GDS, what is the depreciation deduction in year 3 Select one: a. $18,617 b. $23,424 c. $21,560 d. Non
A subsidiary of AEP places in service electric generating and transmissionequipment at a cost of $3,000,000. It is expected to last 30 years with a salvage value of $250,000. The equipment will increase net income by $500,000 in the first year, increasing by 2.4% each year thereafter. The subsidiary’s tax rate is 25% and the after-tax MARR is 9%. There is some concern that the need for this equipment will last only 10 years and will need to be sold off for $550,000 at that time. Develop tables using aspreadsheet to determine the ATCF for each year and the after-tax PW, AW, IRR, and ERR after only 10 years to see if the venture would be worthwhile economically. Solve, a. Use straight-line depreciation (no half-year convention). b. Use MACRS-GDS and state the appropriate property class. c. Use double declining balance depreciation (no half-year convention, no switching).
3. The plant manager of a fiber optics company knows that the remaining capital investment in several types of capital equipment is more closely approximated to the Straight-line depreciation methods than the rapid write-off methods like the MACRS. Therefore, he keeps four sets of books, one for tax purposes (the MARCS) and the other three for equipment management purposes. For an asset that has an initial cost of $120,000, adepreciable life of 5 years and a salvage value of 25 % of the initial cost: i. Compute the depreciation schedule (table) for the equipment including its book value each year using the Straight-line depreciation method. ii. Compute the depreciation schedule for the equipment including its book value each year using the MACRS depreciation method. (use a five-year asset class). iii. Compute the depreciation schedule for the equipment including its book value each year using the Sum of years Digits iv. Compute the depreciation schedule for the equipment including its…
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?
Fairfield Properties owns real property that is MACRS depreclated with n=39 years. They paid $3.3 million for the apartment complex and hope to sell it after 10 years of ownership for 41% more than the book value at that time. Determine the anticipated profit, that is,the difference between the probable selling price and the purchase price. (Enter your answer in dollars and not in millions)The difference between the probable selling price and the purchase price is $_____
Given the date for a real property: Value Description Amount Market Value P1,000,000 Assessment level 25% of market value The local government unit imposes a real property tax of 2% In addition, the unit also imposes a 1% Special Education Fund COMPUTE: Local tax in relation to the assessment of the real property.a. 5,000b. 7,500c. 20,000d. 30,000