Evaluate the annual depreciation allowances

Assignment Help Finance Basics
Reference no: EM1344637

The Bigbee Bottling Company is contemplating the replacement of one of its bottling machines with a newer and more efficient one. The old machine has a book value of $575,000 and a remaining useful life of 5 years. The firm does not expect to realize any return from scrapping the old machine in 5 years, but it can sell it now to another firm in the industry for $250,000. The old machine is being depreciated by $115,000 per year, using the straight-line method.

The new machine has a purchase price of $1,150,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $120,000. The applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. It is expected to economize on electric power usage, labor, and repair costs, as well as to reduce the number of defective bottles. In total, an annual savings of $225,000 will be realized if the new machine is installed. The company's marginal tax rate is 35%, and it has a 12% WACC.


a. Find what initial cash outlay is required for the new machine? Round your answer to the nearest dollar.

b. Evaluate the annual depreciation allowances for both machines and compute the change in the annual depreciation expense if the replacement is made. Round your answers to the nearest dollar.

Reference no: EM1344637

Questions Cloud

Explain what is initial investment outlay for the machine : Explain what is the initial investment outlay for the machine for capital budgeting purposes, that is, what is the Year 0 project cash flow? Round your answer to the nearest cent.
Ways for valuing stocks : What are ways for valuing stocks? Do you believe these valuation techniques could actually lead the average investor to make a profit buying and selling stock? Why or Why not?
Program for insertion sort and selection sort algorithms : Write a program involving the insertion sort, merge sort and selection sort algorithms.
Find out the acceleration of the bucket : A hollow aluminium cylinder 20 cm deep has an internal capacity of 2.000 L at 20.00C. It is completely filled with turpentine and then warmed to 80.00C. (i) How much turpentine overflows? (ii) If it is then cooled back to 20.00 C, how far below th..
Evaluate the annual depreciation allowances : Find what initial cash outlay is required for the new machine? Round your answer to the nearest dollar and evaluate the annual depreciation allowances for both machines and compute the change in the annual depreciation expense
How far did the last car travel : A train is travelling up a 4.8^circ incline at a speed of 3.25m/s while the last car breaks free and begins to coast without friction.
What is the mass of each sphere : The wind exerts a force of 325N north on a sailboat, while the water exerts a force of 425 N west on the sailboat. Find out the magnitude and direction of the net force on sailboat.
Calculate npv of all lease payments : yearly payments of $50,000 paid at the starting of each of the next five years (total of $250,000). Calculate the NPV of all lease payments?
Describe in general terms how each option : Describe in general terms how each option could change a project's NPV and show the corresponding risk of each option, relative to what would have been estimated if the option had not been considered.

Reviews

Write a Review

 

Finance Basics Questions & Answers

  Determining future value

Jordan wants to retire in fifteen years when he turns 65. Jordan wants to have enough money to replace 75 percent of his current income less what he expects to receive from Social Security at the beginning of each year.

  Acquisition-internal new venturing

Under what circumstances might it be best to enter a new business area by acquisition? Under what circumstances might internal new venturing be the preferred mode of entry?

  Compute the withdrawal amount

Lyle O'Keefe invests $37,400 at 8% yearly interest, leaving the money invested without withdrawing any of interest for eight years. At the end of eight years, Lyle withdrew the accumulated amount of money.

  Statement of cash flows and tvm

Please help me solve the following problems related to the statement of cash flows-Tiki Timber Corp invested $6,000,000 in new equipment which will yield sales totaling $1,750,000 for years 1 through 3 and $2,400,000 for years 4 through 6. The annu..

  Computing annual interest rate compounded monthly

Jack has a balance of $1276.53 on a credit card with an annual percentage rate of 15.2%. Find out the amount applied to reduce the principal in this statement. Show work.

  Determine amount of periodic payments

Find out the amount of periodic payments required to pay off the following purchases. Payments are made at the end of period.

  Calculating sustainable growth rate

You've collected the following information about Odyssey, Inc.:

  Find the forward rate

If you were to buy 10 Sept 2011 Euribor futures at 99.35 & sell them at 99.40 three days later, how much money would you have made or lost? Every future has a tick value of €25

  Finding capital structure leverage

The M&M Company wishes to sell 100,000 units of its new product at $15 apiece. The variable cost is $12. The company has an operating expense of $200,000.

  Risk premium on the market

Assume an ExxonMobil Corporation bond will pay $4,500 ten years from now. If the going interest rate on safe 10-year bonds is 4.25%, how much is the bond?

  Social equity-affirmative action and merit pay

It is important to be able to articulate the details of a given discipline through formal education and be knowledgeable enough to discuss social equity fluently in an interview or a meeting. Define the term social equity. . State the purpose of a..

  Accept or else reject the project under npv

Accept or else reject the Project under NPV and Profitability Index and What is the net present value of a project with the following cash flows and a required return of 12%

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