What is sell the old-net of tax and buy the new value

Assignment Help Financial Management
Reference no: EM131328207

The ABD company is considering the purchase of a new machine to replace an out of date machine that has a book value of $18000 and can be sold today for $2,000. The old machine is being depreciated on a straightline basis over 4 more years to a book value of $2000 at the end of the fourth year. The old machine generates annual revenues of $105000 and annual expenses of $75000. This machine requires a fixed investment of $5000 in net working capital. The proposed new machine has an installed and depreciable cost of $125,000 and will be depreciated by 3-yr. ACRS class rules using these percentages: .3334, .4444, .1481, .0741 over the Four years that the machine will be used. The new machine will require a fixed investment of $10500 in net working capital. It is expected to generate annual revenue of $180,000 and annual cash expenses of $90000. If the old machine is used for four more years, it is expected to have only a cash market value of $1500 at the end of the fourth year. The new machine expected to have a cash market value of $42,500. Working capital investments for both machines consists primarily of tools and spare parts that can be sold for full value at any time the machines are retired.

The marginal tax rate is 40%. The appropriate discount rate is 12.5%.

ANSWER THESE QUESTIONS:

1. What is the "Buy the New" value?

2. What is "Sell the old- net of tax?"

3. What is the Initial Outlay?

4. What is the change in revenue for year 2?

5 What is the change in expenses for year 2?

6. What is the Change in Depreciation for year 2?

7. What is the Change in Taxes for year 2?

8. What is the Operating Cash flow for Year 4?

9, What are the Terminal Cash flows for year 4?

10. Is this an acceptable project (and why - what values support you answer?)

Reference no: EM131328207

Questions Cloud

What would you expect the gbp-chf swap price : The Eurosterling interest rate for 1 year (exactly 365 days) is 6%. The EuroSwiss Franc interest rate for the same period is 3%. The spot ate today is GBP/CHR 1.3580 / 90. What would you expect the GBP/CHF swap price to be for 1 year forward?
Estimate the number of tubes and tubes passes required : Taking inside, and outside heat transfer coefficient as 5 and 10kW/m2 and neglecting the thermal resistance of the tube wall estimate the number of tubes and the number of tube passes required
Describe a dbms and its functions : Describe a DBMS and its functions. List, at minimum, three of the popular DBMS products and give a brief description of each.Explain what mobile devices are and why mobile systems are important. Give examples of mobile devices, and, if applicable, n..
Discuss about the role of the marketing function : Imagine: a new 5 week marketing manager internship has opened up at each of the organizations listed below. And based on your past accomplishments (and that awesome business card), they all want you. The internship involves researching your employ..
What is sell the old-net of tax and buy the new value : The ABD company is considering the purchase of a new machine to replace an out of date machine that has a book value of $18000 and can be sold today for $2,000. The old machine is being depreciated on a straightline basis over 4 more years to a book ..
Discuss any demand-side or supply-side factors : Use demand and supply models to illustrate and explain the following: [Use the demand and supply model for a domestic market]: Discuss any demand-side and/or supply-side factors that can explain the recent change in the price of grapes
Perform modeling to assist with analysis and decision making : Perform modeling to assist with analysis and decision making. Effectively communicate with stakeholders to determine, manage, and document business requirements throughout the SDLC.
Identify-research a prominent new product-service failure : Every year hundreds of millions of dollars are spent marketing products (or services) that fail. Millions of dollars those companies would love to get back.Fortunately you happen to have a functioning time machine that you bought on Craig's list...
What is the projects irr : A firm evaluates all of its projects by applying the IRR rule. Year Cash Flow 0 –$ 156,000 1 60,000 2 79,000 3 63,000 What is the project's IRR?

Reviews

Write a Review

 

Financial Management Questions & Answers

  What is the standard deviation of the stock returns

You find a certain stock that had returns of 12 percent, −19 percent, 25 percent, and 13 percent for four of the last five years. The average return of the stock over this period was 10.2 percent. What was the stock’s return for the missing year? Wha..

  Calculate the net investment required to acquire the new saw

Seco Dame Enterprises (SDE) acquired a robotic saw six years ago at a cost of $10 million. Calculate the net investment required to acquire the new saw.

  Transformation of primary securities into secondary claims

What are the economic functions that financial intermediaries perform that benefit society? Be sure to explain how depository intermediaries, like banks, differ from other financial institutions such as investment banking firms or securities brokerag..

  What is the present value of this growing perpetuity

You are evaluating a growing perpetuity product from a large financial services firm. The product promises an initial payment of $24,000 at the end of this year and subsequent payments that will thereafter grow at a rate of 0.05 annually. If you use ..

  Profile all brands in category in terms of pricing strategy

Choose a product category. Profile all the brands in the category in terms of pricing strategies and perceived value. If possible, review the brands' pricing histories.

  Bond yield and after-tax cost of debt

A company's 8% coupon rate, semiannual payment, $1,000 par value bond that matures in 30 years sells at a price of $566.43. The company's federal-plus-state tax rate is 35%. What is the firm's after-tax component cost of debt for purposes of calculat..

  Buy to be assured of earning a seat on the board

An election is being held to fill four seats on the board of directors of a firm in which you hold stock. The company has 7,500 shares outstanding. If the election is conducted under cumulative voting and you own 360 shares, how many more shares must..

  Why is inventory excluded from the quick ratio

Why is inventory excluded from the Quick Ratio?

  What amount of loss will he have

Charles just sold 500 shares of stock A for $12,000.- What amount of loss will he have, assuming both sales were on stocks held for more than one year?

  Three deposits have added to your nest-egg

Assume that, to help build your nest-egg, you made two deposits of $100, one on January 1, 2013, and one on July 1, 2013, in a savings account that paid 10 percent compounded semiannually. Then you made a third S100 deposit on April 1, 2014. How much..

  A project has an initial requirement

A project has an initial requirement of $83,389 for equipment. The equipment will be depreciated to a zero book value over the 5-year life of the project.  The equipment will have an estimated salvage value of $22,842. The annual operating cash flow ..

  Calculate the wacc using market value weights

Common equity is 16% and its before tax cost is 13% and its marginal tax rate is 40%. Assume that the firm's long term debit sells at par value. The firm has 576 shares of common stock outstanding that sells for $4.00 per share. Calculate the WACC us..

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