Sufficient revenues to generate tax shield from depreciation

Assignment Help Financial Management

Reference no: EM13727241

Piliot plus pens is deciding when to replace its old machine. The machine's current salvage value is $2.34 million. Its current book value is $1.43 million. If not sold, the old machine will require maintenance costs of $975,000 at the end of the year for the next five years. Depreciation on the machine is $286,000 per year. At the end of five years, it will have a salvage value of $227,500 and a book value of $0. A replacement machine costs $5.46 million now and requires maintenance costs of $344,000 at the end of each year during its economics life of five years. At the end of five years, the new machine will have a salvage value of $780,000. It will be fully depreciated by the straight-line method. Pilot will need to purchase this machine regardless of what choice it makes today. The corporate tax rate 34 percent and the appropriate discount rate is 12 percent. The company is assumed to earn sufficient revenues to generate tax shields from depreciation. Should Pilot Plus replace the old machine now or at the end of five years?

Reference no: EM13727241

Questions Cloud

Treatment decision for a patient : What are the ethical theories that support making a treatment decision for a patient even when he or she does not want treatment?

What will be the steady state receivables balance : Suppose that a clinic has third-party payer revenues of $10,000 a day. On average, it takes the clinic 50 days to collect from its payers. What will be the steady state receivables balance?

Financial performance of horniman horticulture : What is your assessment of the financial performance of Horniman Horticulture? What is the problem? What is going right with this business? What concerns you? Do you agree with Maggie Brown’s accounts-payable policy?

What factors in the marketing environment present : What factors in the marketing environment present opportunities or threats to automakers

Sufficient revenues to generate tax shield from depreciation : Piliot plus pens is deciding when to replace its old machine. The machine's current salvage value is $2.34 million. Its current book value is $1.43 million. If not sold, the old machine will require maintenance costs of $975,000 at the end of the yea..

Explain project summary and mission statement : Write individual project summary and mission statement in the text box

What are some other consequence of such astronomical pricing : You have learned about Robert Hughes' concerns regarding the skyrocketing prices of art. Do you agree with his critique? What are some other consequences of such astronomical pricing?

Effective internal control over all cash disbursements : The controller of a company told the CEO that “to have maximum effective internal control over all cash disbursements (no matter how small or large), all payments should be made by check.” Do you agree or disagree with this statement? Explain your re..

Total cost of incorporation website and everything : Assume you are an entreprenur who wants to start up a not for profit for domestic violence. Let the name of the not for profit be XYZ. Total cost of incorporation, website, and everything needed to get the project started. How to source for funding..

User Account

All Pages