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Norman Industrial Company (NIC) is considering the replacement of an existing machine. The new machine costs $2.3 million and requires installation costs of $250,000. The existing machine can be sold currently for $1,250,000 before taxes. It is 3 years old, costs $1,500,000 new, and has a $435,000 book value and a remaining useful life of 5 years. It is being depreciated under MACRS using a 5-year recovery period (see table, bottom of page 9 of exam) and therefore has the final 3 years of depreciation remaining. If the old machine is held for 5 more years, its market value will fall to zero by the end of that time. Both the new and the old machine will yield revenues of $2,000,000 per year, but the old machine will have operating costs of $1,600,000 annually, while the new machine’s annual operating costs are only $1,000,000. Over its 5-year operating life, the new machine should reduce operating costs by $600,000 per year. The new machine will also be depreciated under a 5-year MACRS recovery period. The new machine can be sold for $500,000 net of removal and clean-up costs at the end of 5 years. An increased investment of $50,000 will be needed to support operations if the new machine is acquired. Assume that the firm has adequate operating income against which to deduct any loss experienced on the sale of the existing machine. The firm has a 10% cost of capital and is subject to a tax rate of 30% on both ordinary and capital gains. a. Calculate the initial investment associated with this replacement decision. b. Calculate the incremental operating cash inflows associated with this decision. c. Calculate the terminal cash flow at the end of year 5 associated with this decision. d. Calculate the net present value for this project and recommend whether to accept or reject.
The management of Pitsos Ltd is considering the following two investments. The returns of these new projects depend on the state of the economy and they are shown below.
Wonder World is considering construction of a new attraction. It will require an investment of $10 million. The expected after tax cash flows are listed below and the required rate of return is 12%.
Write a paper in which, a two-phase genetic algorithm (GA) model is proposed to solve the resource-constrained project scheduling problem. Both time-cost trade-off and resource scheduling are considered in the proposed model.
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Compute the guaranteed euro proceeds from the American sale if Airbus decides to hedge using a forward contract and At what future spot exchange do you think Airbus will be indifferent between the option and money market hedge?
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How do I figure out this problem? Johnson's Nursery has net income of $42,500, depreciation expense of $1,800, interest expense of $900, taxes of $1,600, additions to net working capital of $2,300, and capital expenditures of $11,700. What is the amo..
If the exchange rate value of the euro goes from U.S. $1.15 to U.S. $1.05, then:
discuss financial management in nonprofit organizations and write an essay that compares and contrasts the application
It’s the end of the summer and your firm has its annual Family Picnic Day on the Saturday of Labor Day weekend. It is a big event: games for kids, a magician who makes balloon animals, tons of great food, kegs of beer, a band for musical entertainmen..
Which one of the following will increase the maximum rate of growth a corporation can achieve?
Jordan and Taylor want to purchase a new 60 quart floor mixer for $12,000. This machine would have a 5 year life with a salvage value of $2,000. The new machine would decrease operating costs by $1,000 each year of its economic life. What is the payb..
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