Calculate the sale value that can break-even the npv

Assignment Help Financial Management

Reference no: EM131603385

Suppose you have to decide whether sell an old machine or keep it with a major overhaul. You can:

A) Sell the machine at time zero for X dollars with zero book value and paying the tax of 40%.

B) Keep the machine, which requires a major overhaul cost of $1,000,000 at time zero. The overhaul cost is depreciable from time 0 to year 5 (over six years) based on MACRS 5-year life depreciation with the half year convention (table A-1 at IRS (Links to an external site.)Links to an external site.). In this case machine can produce and generate equal annual revenue of 900,000 dollars for five years (year 1 to 5) and salvage value of the machine will be $250,000 with zero book value at the end of year 5. The operating cost of the machine will be $400,000 per year from year 1 to year 5.

Calculate the sale value, X, that can break-even the NPV of keeping the machine. Consider 40% income tax rate and after-tax minimum ROR of 18%.

Reference no: EM131603385

Questions Cloud

What information does the payback period provide : What information does the payback period provide? Which of the following statements indicate a disadvantage of using the regular payback period.

Manage as basis to drive value creation : what you think are the 4 or 5 most important metrics/measures one should follow and manage as a basis to drive value creation.

Hospice wishes to buy equipment : A hospice wishes to buy equipment. It has $40,000 of available financing from equity and wishes to borrow $60,000. How much principal will be repaid each year?

Global competition and environmental issues : biggest issue facing the business world today? Global Competition, Ethical business practices, environmental issues,

Calculate the sale value that can break-even the npv : Calculate the sale value, X, that can break-even the NPV of keeping the machine.

Modified internal rate of return : The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR.

Important in evaluating bank strategy : Identify some key financial ratios that would be important in evaluating a bank’s strategy. What is its discount-basis yield?

Brand new hybrid-electric car-conventional gas engine car : You are debating between a brand new hybrid-electric car and a brand new conventional gas engine car.

Sales are on credit-what will be the firm cash cycle : Assuming that all of LilyMac’s sales are on credit, what will be the firm’s cash cycle?

User Account

All Pages