UPENN: LOOSE LEAF CORP.FIN W/CONNECT
17th Edition
ISBN: 9781260361278
Author: Ross
Publisher: McGraw-Hill Publishing Co.
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Chapter 7, Problem 10QP
Financial Break-Even Niko has purchased a brand new machine to produce its High Right line of shoes. The machine has an economic life of five years. The
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10.
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1. The manufacture of folic acid is a competitive business. A new plant costs $100,000 and lasts for three years. The cash flow from the plant is as follows: Year 1: +43,300, Year 2: $43,300 and Year 3 = 58,300. If the salvage value of the plant at the end of year 1 is $80,000, would you scrap the plantat the end of year 1? Assume there is no tax. (E)
A. Yes C. Need more informationB. No D. Don't know
2. The manufacture of folic acid is a competitive business. A new plant costs $100,000 and lasts for three years. The cash flow from the plant is as follows: Year 1: +43,300, Year 2: $43,300 and Year 3 = 58,300. If the salvage value of the plant at the end of year 2 is $40,000, would you scrap the plantat the end of year 2? Assume there is no tax. (E)
A. Yes C. Don't knowB. No D. Need more information
4. Financial Break-Even Ayden’s Toys, Inc., purchased a $435,000 machine to produce toy cars. The machine will be fully depreciated by the straight-line method over its 5-year economic life. Each toy sells for $16. The variable cost per toy is $5 and the firm incurs fixed costs of $295,000 per year. The corporate tax rate for the company is 24 percent. The appropriate discount rate is 12 percent. What is the financial break-even point for the project?
Chapter 7 Solutions
UPENN: LOOSE LEAF CORP.FIN W/CONNECT
Ch. 7 - Forecasting Risk What is forecasting risk? In...Ch. 7 - Sensitivity Analysis and Scenario Analysis What is...Ch. 7 - Prob. 3CQCh. 7 - Break-Even Point As a shareholder of a firm that...Ch. 7 - Prob. 5CQCh. 7 - Real Options Why does traditional NPV analysis...Ch. 7 - Real Options The Mango Republic has just...Ch. 7 - Prob. 8CQCh. 7 - Prob. 9CQCh. 7 - Project Analysis You are discussing a project...
Ch. 7 - Sensitivity Analysis and Break-Even Point We are...Ch. 7 - Prob. 2QPCh. 7 - Prob. 3QPCh. 7 - Prob. 4QPCh. 7 - Prob. 5QPCh. 7 - Decision Trees Ang Electronics. Inc., has...Ch. 7 - Decision Trees The manager for a growing firm is...Ch. 7 - Prob. 8QPCh. 7 - Prob. 9QPCh. 7 - Financial Break-Even Niko has purchased a brand...Ch. 7 - Prob. 11QPCh. 7 - Prob. 12QPCh. 7 - Project Analysis You are considering a new product...Ch. 7 - Project Analysis McGilla Golf has decided to sell...Ch. 7 - Prob. 17QPCh. 7 - Prob. 18QPCh. 7 - Prob. 19QPCh. 7 - Prob. 20QPCh. 7 - Prob. 21QPCh. 7 - Option to Wait Hickock Mining is evaluating when...Ch. 7 - Abandonment Decisions Allied Products, Inc., is...Ch. 7 - Prob. 24QPCh. 7 - Scenario Analysis You are the financial analyst...Ch. 7 - Scenario Analysis Consider a project to supply...Ch. 7 - Sensitivity Analysis In Problem 26, suppose youre...Ch. 7 - Prob. 28QPCh. 7 - Prob. 29QPCh. 7 - Financial Break-Even The Cornchopper Company is...
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- 4. Financial Break-Even Ayden's Toys, Inc., purchased a $435,000 machine to produce toy cars. The machine will be fully depreciated by the straight-line method over its 5-year economic life. Each toy sells for $16. The variable cost per toy is $5 and the firm incurs fixed costs of $295,000 per year. The corporate tax rate for the company is 24 percent. The appropriate discount rate is 12 percent. What is the financial break-even point for the project? 5. Option to Wait Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $435,000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $2.8 million. The cost of the machine will decline by $215,000 per year until it reaches $2.155 million, where it will remain. If your required return is 9 percent, should you purchase the machine? If…arrow_forwardAn industrial organization has established an automated assembly line (for $240,000) that will reduce labor costs by $36,000 each year for 10 years. The Internal Revenue Service has ruled that you must depreciate the assembly line on a Straight Line (SL) basis with a depreciable life of 10 years. After-tax MARR is 10% per year. The effective income tax rate is 40%. After 10 years, the machine will have zero salvage value. a) Draw a table showing Before Tax Cash Flow (BTCF) and After-Tax Cash Flow (ATCF). b) Calculate the after-tax PW and IRR. (Use interpolation method to find IRR). Is it feasible?arrow_forwardA $69,000 machine with a 5-year class life was purchased 2 years ago. The machine will now be sold for $50,000 and replaced with a new machine costing $88,000, with a 10-year class life. The new machine will not increase sales, but will decrease operating costs by $3,000 per year. Simplified straight line depreciation is employed for both machines, and the marginal corporate tax rate is 34 percent. What is the incremental annual cash flow associated with the project?arrow_forward
- A $73,000 machine with a 8-year class life was purchased 5 years ago. The machine will now be sold for $35,000 and replaced with a new machine costing $55,000, with a 5-year class life. The new machine will not increase sales, but will decrease operating gosts by $16,000 per year. Simplified straight line depreciation is employed for both machines, and the marginal corporate tax rate is 34 percent. What is the initial outlay for the project? NOTE-- ALTHOUGH THE INITIAL OUTLAY IS NEGATIVE, PLEASE ENTER YOUR ANSWER AS A POSITIVE SIGN. IN OTHER WORDS, IF YOUR ANSWER IS 10,000, ENTER IT AS 10,000. DO NOT ENTER THE DOLLAR SIGN.arrow_forwardA $76,000 machine with a 10-year class life was purchased 3 years ago. The machine will now be sold for $31,000 and replaced with a new machine costing $51,000, with a 5-year class life. The new machine will not increase sales, but will decrease operating costs by $ 16,000 per year. Simplified straight line depreciation is employed for both machines, and the marginal corporate tax rate is 34 percent. What is the initial outlay for the project? ALTHOUGH THE INITIAL OUTLAY IS NEGATIVE, PLEASE ENTER YOUR ANSWER AS A POSITIVE SIGN. IN OTHER WORDS, IF YOUR ANSWER IS-10,000, ENTER IT AS 10,000. DO NOT ENTER THE DOLLAR SIGNarrow_forwardAyden’s Toys, Incorporated, purchased a $485,000 machine to produce toy cars. The machine will be fully depreciated by the straight line method over its five-year economic life. Each toy sells for $19. The variable cost per toy is $6 and the firm incurs fixed costs of $310,000 per year. The corporate tax rate for the company is 24 percent. The appropriate discount rate is 12 percent. What is the financial break-even point for the project?arrow_forward
- A $85,000 machine with a 9-year class life was purchased 3 years ago. The machine will now be sold for $27,000 and replaced with a new machine costing $54,000, with a 5-year class life. The new machine will not increase sales, but will decrease operating costs by $16,000 per year. Simplified straight line depreciation is employed for both machines, and the marginal corporate tax rate is 34 percent. What is the initial outlay for the project? NOTE -- ALTHOUGH THE INITIAL OUTLAY IS NEGATIVE, PLEASE ENTER YOUR ANSWER AS A POSITIVE SIGN. IN OTHER WORDS, IF YOUR ANSWER IS -10,000, ENTER IT AS 10,000. DO NOT ENTER THE DOLLEAR SIGN.arrow_forward1. Medavoy Company is considering a new project that complements its existing business. The machine required for the project costs $4.75 million. The marketing department predicts that sales related to the project will be $2.63 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated to zero over its 4-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 25 percent of sales. The company also needs to add net working capital of $215,000 immediately. The additional net working capital will be recovered in full at the end of the project's life. The corporate tax rate is 23 percent and the required return for the project is 10 percent. What is the value of the NPV for this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g. .,1,234,567.89.) 2. Shinoda…arrow_forwardA project has to sell a machine that is obsolete. The market department finds a buyer who is willing to pay $100, 000 for the machine. The machine was purchased 4 years ago for $1.1 million. The accounting department notes that the depreciation method for this machine is straight line, and the machine will be depreciated to zero over a five year time period after purchase. What is the machine's after - tax salvage value? Tax rate is 21%. Question 1 options: $1, 635.24 $2, 314.05 $142,000.00 - $2,784.62$289.26arrow_forward
- The manufacture of folic acid is a competitive business. A new plant costs $100,000 and lasts for three years. The cash flow from the plant is as follows: Year-1: +43,300, Year-2: $43,300 and Year-3 = 58,300. (Assume there is no tax.) If the salvage value of the plant at the end of year is $66,700, would you scrap the plant at the end of year one?arrow_forwardMichelle Amabo Company is planning to buy a new machine that can produce additional 20,000 units of product per year. The product sells for P50 each. The cost associated with the product is P30 per unit, exclusive of depreciation on the new machine. The new machine which is expected to last for 10 years will cost P500,000. No salvage value is expected to be recovered at the end of its life. The income tax rate is 35%. Required: 1. Accounting net income 2. Annual net cash inflows from the new machine.arrow_forwardThe manufacture of folic acid is a competitive business. A new plant costs $100,000 and lasts for three years. The cash flow from the plant is as follows: Year 1: +43,300, Year 2: $43,300 and Year 3 = 58,300. If the salvage value of the plant at the end of year 2 is $40,000, would you scrap the plantat the end of year 2? Assume there is no tax. (E) A. Yes C. Don't knowB. No D. Need more informationarrow_forward
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