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What is the equipment after-tax net salvage value

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Reference no: EM132235188

Assignment: Complete the following graded homework assignments from the textbook. This homework assignment is to be submitted in an Excel workbook titled "FIN510_Homework5_yourname."

Problems: 10-8 NPV IRRs and MIRRs for Independent Projects

• delman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this year's capital budget.

The projects are independent. The cash outlay for the truck is $17,100 and that for the pulley system is $22,430. The firm's cost of capital is 14%. After-tax cash flows, including depreciation, are as follows:

Year

Truck

Pulley

1

$5,100

$7,500

2

  5,100

  7,500

3

  5,100

  7,500

4

  5,100

  7,500

5

  5,100

  7,500

10-9 NPVs and IRRs for Mutually Exclusive Projects

• Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Because both forklifts perform the same function, the firm will choose only one. (They are mutually exclusive investments.) The electric-powered truck will cost more, but it will be less expensive to operate; it will cost $22,000, whereas the gas-powered truck will cost $17,500. The cost of capital that applies to both investments is 12%. The life for both types of truck is estimated to be 6 years, during which time the net cash flows for the electric-powered truck will be $6,290 per year and those for the gas-powered truck will be $5,000 per year. Annual net cash flows include depreciation expenses. Calculate the NPV and IRR for each type of truck, and decide which to recommend.

10-10 Capital Budgeting Projects

Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects' NPVs, IRRs, MIRRs, and PIs, assuming a cost of capital of 12%. Which project would be selected, assuming they are mutually exclusive, using each ranking method? Which should actually be selected?

Problems (pp. 489)

11-2 Operating Cash Flow

• The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service:

Projected sales

$18 million

Operating costs (not including depreciation)

$9 million

Depreciation

$4 million

Interest expense

$3 million

11-3 Net Salvage Value

• Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $12 million, of which 75% has been depreciated. The used equipment can be sold today for $4 million, and its tax rate is 40%. What is the equipment's after-tax net salvage value?

Reference no: EM132235188

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