Considering replacing the wood steamer

Assignment Help Financial Management
Reference no: EM13768268

The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides. The steamer, purchased just 2 years ago, is being depreciated on a straight-line basis and has 6 years of remaining life. Its current book value is $1,800, and it can be sold on an Internet auction site for $4,500 at this time. Thus, the annual depreciation expense is $1,800/6=$300 per year. If the old steamer is not replaced, it can be sold for $800 at the end of its useful life.

Gilbert is considering purchasing the Side Steamer 3000, a higher-end steamer, which costs $8,100, and has an estimated useful life of 6 years with an estimated salvage value of $810. This steamer falls into the MACRS 5-years class, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The new steamer is faster and would allow for an output expansion, so sales would rise by $2,000 per year; even so, the new machine's much greater efficiency would reduce operating expenses by $1,500 per year. To support the greater sales, the new machine would require that inventories increase by $2,900, but accounts payable would simultaneously increase by $700. Gilbert's marginal federal-plus-state tax rate is 40%, and its WACC is 15%. Should it replace the old steamer?

Should the old steamer be replaced?

What is the NPV of the project? Round your answer to the nearest dollar.

Reference no: EM13768268

Questions Cloud

Incorrect patient information impact aclaim issues : Discuss coding of Evaluation and Management Visits. How must medical documentationsupport providerbilling?
Similarities of common stocks and bonds : Contrast the differences/similarities of common stocks and bonds. Explain how they would be used in the corporate environment.
Etermine whose weight is closer to average : Jack weighs 160 pounds and his sister weighs 110 pounds. If the mean weight for men his age is 175 with a standard deviation of 14 pounds and the mean weight for women is 145 with a standard deviation of 10 pounds, determine whose weight is closer to..
Maintaining terrestrial and atmospheric resources : State the current economic situation and the three choices that were available to the town of Sparksville.Discuss how these three choices would impact water pollution and indoor and outdoor air pollution. Explain how each of the three choices could..
Considering replacing the wood steamer : The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides. The steamer, purchased just 2 years ago, is being depreciated on a straight-line basis and has 6 years of remaining life. Its curren..
Compare long-term instruments and short-term risks : Compare long-term instruments and short-term risks, in terms of the various types of risk to which investors are exposed. Explain your answers.
Calculate the call value of owens corning warrants : When Owens Corning emerged from bankruptcy in 2006, the debt holders became the sole owners of the company. But the old stockholders were not left entirely empty handed. They were given warrants to buy the new common stock at any point in the next se..
Target capital structure-cost of debt and cost of equity : A company has a target capital structure of 60% debt and 40% equity and the tax rate is 34%. If the cost of debt is 8%, and he cost of equity is 12%, what is WACC of the company at its target capital structure?
Why are investors risk-averse : Why are investors risk-averse? How can investors deal with different degrees of risk? What is the expected return on a portfolio? How can the expected return on a portfolio be manipulated to minimize the risk on that portfolio?

Reviews

Write a Review

Financial Management Questions & Answers

  Foreign company acquisition

Acquisition by a foreign company and the effects of that decision and the results of foreign exchange in Euro and the exchange rate differences.

  Financial management for profit and non profit organizations

In this essay, we are going to discuss the issues of financial management in a non-profit organisation.

  Method for estimating a venture''s value

Evaluate venture's present value, cash and surplus cash and basic venture capital.

  Replacement analysis

This document show the Replacement Analysis of modling machine. Is replacement give profit to company or not?

  Business finance task - capital budgeting

Your company is considering using the payback period for capital-budgeting. Discuss the advantages and disadvantages of this technique.

  Analysis of the investment

In this project, you will focus on one of these: the additional cost resulting from the purchase of an apple press (a piece of equipment required to manufacture apple juice).

  Conduct a what-if analysis

Review the readings and media for this unit, including the Anthony's Orchard case study media. Familiarise yourself with the Anthony's Orchard company and its current situation.

  Determine operational expenditures

Organisations' behaviour is guided by financial data. In the short term, such data will help determine operational expenditures; in the long term, historical data may help generate forecasts aimed at determining strategic plans. In both instances.

  Personal financial management

How much will you have left over each half year if you adopt the latter course of action?

  Sources of finance for expansion into new foreign markets

A quoted company is considering several long-term sources of finance for expansion into new foreign markets.

  Long term financial planning

This assignment is designed for analyze Long term financial planning begins with the sales forecast and the key input in the long term fincial planning.

  Explain the role of fincial manager

This assignment explain the role of fincial manager, function of manger. And what are the motives of financial manager.

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