Considering the purchase of new machine

Assignment Help Financial Management
Reference no: EM131131361

Montilus Products Inc. is considering the purchase of a new machine, which will reduce manufacturing costs by $15,000 annually. Montilus will use the MACRS accelerated method to depreciate the machine (5-year MACRS class life), and it expects to sell the machine at the end of its 6-year operating life for $10,000. The firm expects to be able to reduce net operating working capital by $12,000 when the machine is installed, but required working capital will return to the original level when the machine is sold after 6 years. Montilus's marginal tax rate is 40 percent and it uses a discount rate of 12 percent to evaluate projects of this nature. If the machine costs $50,000 what is the project's NPV and IRR?

Reference no: EM131131361

Questions Cloud

What is the after-tax salvage value : ABC Company purchased a new machinery 4 years ago for $62,639. Today, it is selling this equipment for $24,229. What is the after-tax salvage value if the tax rate is 28 percent? The MACRS allowance percentages are as follows, commencing with year on..
What is the annual operating cash flow : ABC Company is considering a new project. The project is expected to generate annual sales of $85,543, variable costs of $26,950, and fixed costs of $20,137. The depreciation expense each year is $7,747 and the tax rate is 39 percent. What is the ann..
What are the betas of stocks : You have observed the following returns over time: year stock x stock y market 2009 14% 13% 12% 2010 19 7 10 2011 -16 -5 -12 2012 3 1 1 2013 20 11 15 assume that the risk free rate is 6% and the market risk premium is 5%. a. what are the betas of Sto..
Financial statements-corporate news and analyst opinions : Which of the following is data that includes past stock prices and volume, financial statements, corporate news, analyst opinions, etc.?
Considering the purchase of new machine : Montilus Products Inc. is considering the purchase of a new machine, which will reduce manufacturing costs by $15,000 annually. Montilus will use the MACRS accelerated method to depreciate the machine (5-year MACRS class life), and it expects to sell..
Analyzing cash dividends on preferred and common stock : Analyzing Cash Dividends on Preferred and Common Stock Potter Company has outstanding 15,000 shares of $50 par value, 8% preferred stock and 50,000 shares of $5 par value common stock. If the preferred stock is noncumulative, determine the total amou..
Investment return-what was your percent return : Investment Return MedTech Corp stock was $51.80 per share at the end of last year. Since then, it paid a $1.30 per share dividend. The stock price is currently $63.35. If you owned 300 shares of MedTech, what was your percent return?
Computing straight-line and double-balance depreciation : Computing Straight-Line and Double-Declining-Balance Depreciation On January 2, Haskins Company purchases a laser cutting machine for use in fabrication of a part for one of its key products.  Compute depreciation expense for each year of the machine..
What are the terminal cash flows in year five : Five years ago, ABC Company invested $55,638 in a machinery. The investment in net working capital was $9,468 which would be recovered at the end of the project. Today, ABC Company is selling the machinery for $16,277. The book value of the machinery..

Reviews

Write a Review

 

Financial Management Questions & Answers

  What is the effective annual interest rate

You have two options of paying for your new dishwasher, you can either make a single payment of $400 today, or you can pay $70 for the next 6 months, with the first payment made today. what is the effective annual interest rate (EAIR) of the second o..

  Financial press reports the USD-NGN exchange rate

The financial press reports the USD/NGN exchange rate at 194.0521 and the USD/NZD exchange rate at 1.5043. What is the cross rate between the New Zealand dollar and the Nigerian naira?

  Debt–equity ratio-Calculate the APV of the project

MVP, Inc., has produced rodeo supplies for over 20 years. The company currently has a debt–equity ratio of 50 percent and is in the 40 percent tax bracket. The required return on the firm’s levered equity is 14 percent.  The company would also make y..

  What is markets expectation today of average level inflation

A 5-year corporate bond has an 8 percent yield. A 10-year corporate bond has a 9 percent yield. The two bonds have the same default risk premium and liquidity premium. The real risk-free rate, r*, is expected to remain constant at 3 percent. Inflatio..

  Non-financial professionals understand the first steps

Even a rough NPV can be a great way to weed though a group of projects to find the top picks that need further analysis. Most department managers can understand a simple "will it make money or not" and NPV can be an excellent way to help non-financia..

  Capital asset pricing model approach to equity valuation

The capital asset pricing model approach to equity valuation: You are preparing to make monthly payments of $75, beginning at the end of this month, into an account that pays 6 percent interest compounded monthly. How many payments will you have made..

  Prevent fraudulent conduct in investment markets might deter

In light of the securities fraud committed by Bernard Madoff and others, write an essay of one to two pages indicating what the SEC could have or should have done to prevent this type of fraud. In your essay indicate whether the failure of the SEC to..

  Company increases production

Farmland Inc. produces 80,000 units of product A at a total cost of $2.4 million. Total fixed costs are $1 million. If the company increases production by 25% and uses a 40% markup the price per unit will be:

  What is the yield-to-maturity of this bond

Duke Power has a 10 year, 5.5% coupon bond that is currently selling for $1,033.15. Assume that coupon payments are semi-annual. What is the yield-to-maturity of this bond?

  Considering adopting the income tax

Suppose the state of California approved the use of local option income taxes (personal and corporate). You work in the finance department of a county government and the country is considering adopting the income tax.

  Find the interest rates earned

Find the interest rates earned on each of the following. You borrow $720 and promise to pay back $792 at the end of 1 year. You borrow $65,000 and promise to pay back $98,319 at the end of 14 years.

  What are issuers cash proceeds from issuance of bonds

Garcia company issues 10%, 15-year bonds with a par value of $240,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 14%, which implies a selleing price of 75%. What are the issuers cash proceeds from i..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd