Calculate the annual depreciation for the asset purchase

Assignment Help Finance Basics
Reference no: EM132422049

Problem: A firm expects to have earnings before interest and taxes (EBIT) of $160,000 in each of the next 6 years. It pays annual interest of $15,000. The firm is considering the purchase of an asset that costs $140,000, requires $10,000 in installation cost, and has a recovery period of 5 years. It will be the firm's only asset, and the asset's depreciation is already reflected in its EBIT estimates.

Required:

Question 1: Calculate the annual depreciation for the asset purchase using the MACRS depreciation percentages in Table 4.2 on page 117.

Question 2: Calculate the firm's operating cash flows for each of the 6 years, using Equation 4.3. Assume that the firm is subject to a 40% tax rate on all the profit that it earns.

Question 3: Discuss the significance of each value calculated in parts B.

Reference no: EM132422049

Questions Cloud

About databases in real life : You are requested to submit one example of application where databases are used and discuss one relation from this database.
Finance for non-financial managers : Suppose that an incorporated dairy is considering opening up a roadside ice cream parlor. The dairy is currently all-equity financed, but could borrow
New projection equipment be purchased : Megaplex Theaters has a 34 percent tax rate and a cost of capital of 14 percent. According to the NPV rule, should the new projection equipment be purchased?
What steps should you take prior to making a purchase : Question 1: What steps should you take prior to making a purchase? Question 2: What steps should you take while making a purchase?
Calculate the annual depreciation for the asset purchase : Calculate the annual depreciation for the asset purchase using the MACRS depreciation percentages in Table 4.2 on page 117.
Analyzing the principle of least privilege : Analyzing the principle of least privilege.
Federal deposit insurance corporation : Creation of the FDIC (Federal Deposit Insurance Corporation) encouraged reluctant depositors to put their money into the banking system.
How globalization and technology changes : Apply the industrial organization model and the resource-based model to determine how your corporation could earn above-average returns
What is the outstanding balance on loan after 5 years : How much will your loan payoff amount be (in other words, what is the outstanding balance on your loan after 5 years)?

Reviews

Write a Review

Finance Basics Questions & Answers

  Find total nominal rate and total dollar return

Suppose you bought a bond with an annual coupon rate of 8.8 percent one year ago for $911. The bond sells for $954 today. a. Assuming a $1,000 face value, what was your total dollar return on this investment over the past year?

  Why do firms grant cofee credit would it be more efficient

why do firms grant ?ofree?? credit? would it be more efficient if all sales were for cash and late payers were charged

  Discussion-the hiring process

This Discussion provides you with an opportunity to apply and discuss the employment process concepts presented in your Reading and Learning Activity.

  What is the total inventory cost at the eoq level

Michael's Mechanical sells 6,000 jettison machines annually. Each machine costs Michael's $2,000 to purchase, inventory carrying costs are 30 percent of the purchase price, and the cost of placing an order with its supplier is $120.

  What is the weighted average cost of capital wacc

What is the weighted average cost of capital WACC

  Computation of annual value-present value of cash flow

The cash flow for an engineering project is given below:

  Which selection of µ would make e-rt xt a martingale

This exercise deals with obtaining martingales. Suppose Xt is a geometric process with drift μ and diffusion parameter σ.(a) When would the e-rt Xt be a martingale? That is, when would the following equality hold. (b) More precisely, remember from th..

  Find the duration of the plan obligations

A pension plan is obligated to make disbursements of $2.6 million, $3.6 million, and $2.6 million at the end of each of the next three years, respectively. Find the duration of the plan's obligations if the interest rate is 7% annually.

  Assume that you were recently hired by tii as a financial

the table below gives the balance sheet for travellers inn inc. tii a company that was formed by merging a number of

  Fresh fruit inc has a par value bond

What would the annual yield to maturity be on the bond if you purchased the bond today and held it until maturity?

  What will be next year eps

If Sidman reinvest retained earnings in projects whose average return is equal to the stock's expected rate of return, what will be next year's EPS?

  Record the establishment of the petty cash fund

Halle's Berry Farm establishes a $400 petty cash fund on September 4 to pay for minor cash expenditures. The fund is replenished at the end of each month.

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