NPV, Financial Management

Assignment Help:
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?


Related Discussions:- NPV

What do you mean by economic risk, Q. What do you mean by Economic risk? ...

Q. What do you mean by Economic risk? Transaction risk is appears as the short-term manifestation of economic risk which could be defined as the risk of the present value of a

Important areas of personal financial management, Gary and Joyce Yau, both ...

Gary and Joyce Yau, both 30, last month bought their dream house in London, Ontario. The purchase price was $450,000 plus addition fees such as taxes, legal fees, administration fe

Explain about cash forecasting method, Q. Explain about Cash Forecasting Me...

Q. Explain about Cash Forecasting Method ? Under this method an approximate is made of cash receipts and payments for the next period. Estimated cash receipts are added to the

Explain how earnings available to common stockholders, Explain how earnings...

Explain how earnings available to common stockholders and common stock dividends paid from the current income statement affect the balance sheet item retained earnings. The cha

Why we measure a project''s risk as the change in the cv, Explain why we me...

Explain why we measure a project's risk as the change in the CV. We compute a project's risk as the change in the coefficient of variation for the reason that this focuses on t

Capital asset pricing model (capm), Capital Asset Pricing Model (CAPM) ...

Capital Asset Pricing Model (CAPM)   Capital Asset Pricing Model (CAPM) is a model which utilizes the measure of systematic risk, 'B' to price assets. The expected rate of r

Integration of economic, a) Globalisation refers to the interdependence and...

a) Globalisation refers to the interdependence and integration of economic, social and politic issues (services, goods, people and capital), across the world. For example, consumer

Cost of preference share capital, I need assistance on Cost of preference s...

I need assistance on Cost of preference share capital in financial management? Can someone help me to solve this proble with example It's Urgent!!!!!!!

State the advantages of ias 14 risk and return approach, IAS 14 "risk and r...

IAS 14 "risk and return approach" Advantages Highlights the profitability, risk and returns of each segment. Information is more comparable with other entities.

Claim for refund, Claim for Refund - A refund isn't automatically mailed if...

Claim for Refund - A refund isn't automatically mailed if one is due. A taxpayer whether individual orbusiness, should file a request on a form. It should also be filed within the

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd