NPV, Financial Management

2.5. Västerås Corporation plans to buy a truck for $40,000 and depreciate it fully over 5 years using straight-line method of depreciation. However, it plans to use it for 8 years and then sell it for an unknown amount. The truck will save $8000 annually, before taxes. The discount rate in this case is 12% and the income tax rate 33%. Find the resale value of the truck after 8 years just to break even.


2.6. Örebro Hospital, a non-profit entity, wants to buy a machine for $30,000, which will run for 7 years. The savings from the machine is uncertain, with expected value $5000 per year, and standard deviation $1000. The hospital uses 11% as the discount rate and it does not pay any income taxes. Find the probability that the machine will be profitable, that is, it has a positive NPV.


2.7. Linköping Cancer Institute is planning to acquire an NMR machine at a cost of $24 million. The machine has an uncertain life span: it may last for 6 years (probability 50%), 7 years (probability 30%), or 8 years (probability 20%). The Institute will depreciate the machine on a straight-line basis with a life of 6 years, with no residual value. While the machine is in operation, it will generate a pretax income of $6 million annually. The tax rate of Institute is 40% and it uses a discount rate of 9%. Should the Institute buy the new machine?


2.8. Helsingborg Corporation is considering the purchase of a new machine that has an expected life of 5 years with a standard deviation of 2 years. The machine will cost $40,000 and will generate a pre-tax income of $10,000 annually. The tax rate of Helsingborg is 40% and its cost of capital is 7%. Helsingborg will depreciate the machine on a straight-line basis over 5 years with no residual value. Calculate the probability that the machine will have a life of between 4 and 7 years. Is the machine acceptable if it runs for only 4 years?

Posted Date: 11/2/2012 4:27:19 PM | Location : United States







Related Discussions:- NPV, Assignment Help, Ask Question on NPV, Get Answer, Expert's Help, NPV Discussions

Write discussion on NPV
Your posts are moderated
Related Questions
calculation of depreciation of long lived assets in times of inflation

Keys Printing plans to issue a $1,000 par value, 10-year noncallable bond with a 5.00% coupon, paid semiannually. It should sell at par. The company''''s marginal tax rate is 40.00

What is a sunk cost?  Is it relevant when evaluating a proposed capital budgeting project?  Explain. A sunk cost is a cash flow that has already takes placed, or that will take


I need to get a good understandin about what this means?


Simple Arbitrage The easiest arbitrage opportunities in the option market exist when options violate simple pricing bounds. No option, for example, should sell for less than it

Question : (a) A company wants to purchase a plant for its expanding operations. The desired plant is available at Rs 300,000 in cash. Alternatively, the company has the option

The Nu-Nu Brothers Inc. (NNBI) has the following capital structure, which it considers to be optional: Debt 25% Preferred Stock 15% Common Equity 60% NNBI''''s expected net income

Is the net income of a year the money the company made that particular year or is it a number whose significance is quite doubtful? The net income of a year is not money that a