Reference no: EM131346294
The Division of the Culver Company, a profitable, diversified manufacturing firm, purchased a machine five years ago at a cost of $10,000. The machine had an expected life of 10 years at time of purchase and a zero estimated salvage value at the end of the 10 years. It is being depreciated on a straight-line basis and has a book value of $5,000 at present. The division manager reports that he can buy a new machine for $15,000 (including installation) which, over its 15 year life, will expand sales from $10,000 to $11,000 a year. Further, it will reduce labor and raw materials usage sufficiently to cut operating costs from $7,000 to $5,000. The old machine's current market value is $1,000. Taxes are at a 6% rate and are paid annually. The ACRS class life of the new machine is five years with corresponding recovery deduction percentages of 15%, 22%, 21%, 21%, and 21%. The firm's cost of capital is 15%. Should Culver buy the new machine?
1. Calculate the actual incremental cash inflows over for the first 5 years.
2. Determine the actual cash outlay attributable to the new investment.
3. Determine the present value of the incremental cash flows and whether the net present value is positive.
4. Calculate the Net Present Value of the following cash flows at 12% per annum.
Time Zero -11,000
End of Yr One 1,000
End of yr Two 2,000
End of Yr Three 3,000
End of Yr Four 5,000
End of Yr Five 6,000
|
What is the firm market value capital structure
: Titan Mining Corporation has 8.7 million shares of common stock outstanding and 230,000 6.4 percent semiannual bonds outstanding, par value $1,000 each. What is the firm’s market value capital structure?
|
|
How much in total will you receive from the sale
: The board of directors of DDT Inc. declared a dividend of $0.75 per share payable on Monday, January 28 to shareholders of record as of Monday, January 14. You owned 500 shares of DDT on Wednesday, January 9 when the price was $7.50 per share. Assumi..
|
|
Market imperfections or tax effects exist
: ACE currently has 350,000 shares of stock outstanding that sell for $76 per share. Assuming no market imperfections or tax effects exist, what will the share price and the total number of shares after each of the following? ACE has a four-for-five re..
|
|
What is the value of levered firm
: An unlevered firm has a cost of capital of 14% and earnings before interest and taxes of $150,000. A levered firm with the same operations and assets has both a book value and a face value of debt of $700,000 with a 7% annual coupon. The applicable t..
|
|
Actual cash outlay attributable to the new investment
: The Division of the Culver Company, a profitable, diversified manufacturing firm, purchased a machine five years ago at a cost of $10,000. The machine had an expected life of 10 years at time of purchase and a zero estimated salvage value at the end..
|
|
Determine actual cash outlay attributable to new investment
: The Division of the Culver Company, a profitable, diversified manufacturing firm, purchased a machine five years ago at a cost of $10,000. The machine had an expected life of 10 years at time of purchase and a zero estimated salvage value at the end..
|
|
Market performance from the investor perspective
: The article Bank Acts and Bank Failures in Doc Sharing. Are each of these acts still in force? Do the acts improve financial market performance from the investor's perspective or are they costly over-regulation?
|
|
Describe potential capital expenditure project from industry
: For your second posting, describe a potential capital expenditure project from the industry in which you now work or an industry in which you are interested. What is the project? Describe and provide an approximate value of the initial cash flow. Des..
|
|
Policies have on the company cash conversion cycle
: Edison Inc. has annual sales of $36,500,000, or $100,000 a day on a 365-day basis. The firm's cost of goods sold is 75% of sales. On average, the company has $9,000,000 in inventory and $8,000,000 in accounts receivable. She also anticipates that the..
|