Customer Service Chat
Get quote & make Payment
Finance: Scenario Analysis, Financial Management
Your firm, Agrico Products, is considering a tractor that would have a cost of $35,000, would increase pretax operating cash flows before taking account of depreciation by $12,000 per year, and would be depreciated on a straight-line basis to zero over 5 years at the rate of $7,000 per year, beginning the first year. (Thus, annual cash flows would be $12,000 before taxes plus the tax savings that result from $7,000 of depreciation.) The managers are having a heated debate about whether the tractor would actually last 5 years. The controller insists that she knows of tractors that have lasted only 4 years. The treasurer agrees with the controller, but he argues that most tractors actually do give 5 years of service. The service manager then states that some last for as long as 8 years.
Given this discussion, the CFO asks you to prepare a scenario analysis to determine the importance of the tractor''s life on the NPV. Use a 40% marginal federal-plus-state tax rate, a zero salvage value, and a 10% WACC. Assuming each of the indicated lives has the same probability of occurring (probability = 1/3), what is the tractor''s expected NPV? (Hint: Use the 5-year straight-line depreciation for all analyses and ignore the MACRS half-year convention for this problem.)
Round your answers to two decimal places. Do not round intermediate calculations.
a. Tractor''s NPV if actual life is 5 years. $__________
b. Tractor''s NPV if actual life is 4 years. $_________
c. Tractor''s NPV if actual life is 8 years. $__________
d. Tractor''s expected NPV. $__________
Posted Date: 10/25/2012 3:51:46 PM | Location : United States
Ask an Expert
Finance: Scenario Analysis, Assignment Help, Ask Question on Finance: Scenario Analysis, Get Answer, Expert's Help, Finance: Scenario Analysis Discussions
Write discussion on Finance: Scenario Analysis
Your posts are moderated
Write your message here..
COST OF CAPITAL, cost of capital, Financial Management The Nu-Nu Brothers I...
cost of capital, Financial Management The Nu-Nu Brothers Inc. (NNBI) has the following capital structure, which it considers to be optional: Debt 25% Preferred Stock 15% Common Equ
Explain cash flow budget and npv in lkl plc, LKL PLC Project VZ (...
LKL PLC Project VZ (a) Cash Flow budget and NPV WORKINGS
Operating cycles, use the operating cycle to formulate a broiler business
use the operating cycle to formulate a broiler business
Factors affecting choice of a maximum cash balance amount, Explain the fact...
Explain the factors affecting the choice of a maximum cash balance amount. The maximum cash balance amount is regulated by available investment opportunities, the expected payb
Accrued income, Income that is received in a fund or by company by providin...
Income that is received in a fund or by company by providing a service or selling a product, but still has to be received. Mutual funds or other pooled assets that build up income
Evaluate the extent to which the balanced scorecard, Evaluate the extent to...
Evaluate the extent to which the Balanced Scorecard: The Balanced Scorecard has been described as an effective measurement system which enables managers of an organisation to
Define intermediation, Define intermediation . The monetary system mak...
Define intermediation . The monetary system makes it possible for deficit and surplus economic units to come together exchanging funds for securities to their mutual benefit.
Asset Securitization Structures (Excel help), #questAs an assistant vice pr...
#questAs an assistant vice president at a regional bank, your boss has tasked you to acquire $100 million of residential mortgages to be securitized in a pass-through MBS. There mu
How to calculate payment of expenses, How to calculate payment of expenses:...
How to calculate payment of expenses: SAIB, LLC is a US company that provides cell phone and internet service; it seeks to expand its international operations into Kyrgyzstan.
LEVERAGE, Evaluate the importance of leverage in financial management of a ...
Evaluate the importance of leverage in financial management of a small scale company
Accounting Assignment Help
Economics Assignment Help
Finance Assignment Help
Statistics Assignment Help
Physics Assignment Help
Chemistry Assignment Help
Math Assignment Help
Biology Assignment Help
English Assignment Help
Management Assignment Help
Engineering Assignment Help
Programming Assignment Help
Computer Science Assignment Help
Why Us ?
~24x7 hrs Support
~Quality of Work
~Time on Delivery
~Privacy of Work
Human Resource Management
Literature Review Writing Help
Terms & Conditions
Copyright by ExpertsMind IT Educational Pvt. Ltd.