Considering the purchase of new equipment to replace

Assignment Help Financial Management

Reference no: EM13879652

Rozetta Manufacturing Company (RMC) is considering the purchase of a new equipment to replace the old one. The old equipment was purchased 5 years ago at a cost of $20,000, and it is being depreciated on a straight-line basis to a zero salvage value over a 10-year life. The current market value of the old equipment is $14,000. The new equipment, which falls into the MACRS 5-year class, has an estimated life of 5 years; it costs $28,000 with installation and adjustment charges of $2,000. RMC plans to sell the equipment at the end of the fifth year for $1,000. The applicable depreciation rates are 0.20, 0.32, 0.19, 0.12, 0.11, and 0.06. The new equipment is expected to reduce operating expenses by $3,000 per year, while sales are not expected to change (that is the new equipment is expected to generate before-tax cash savings of $3,000 per year). RMC’s tax rate is 40% and its WACC is 10%.

Reference no: EM13879652

Questions Cloud

Analyze the current health care delivery structure in state : Analyze the current health care delivery structure in your state

Investment in subsidiary under the cost method : On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Any rem..

Last payment at an annual effective rate of interest : Consider an annuity-due with 12 annual payments. The first payment is 4000 at time 0 and each subsequent payment decreases by 5%. Find the AV of this annuity 2 years after the last payment at an annual effective rate of interest i=6%.

What price was paid for the stock : A common stock is held for five years, during which time it receives an annual dividend of $5. the stock was sold for $110 and generates an average annual return of 14%. what price was paid for the stock?

Considering the purchase of new equipment to replace : Rozetta Manufacturing Company (RMC) is considering the purchase of a new equipment to replace the old one. The old equipment was purchased 5 years ago at a cost of $20,000, and it is being depreciated on a straight-line basis to a zero salvage value ..

Consider four different stocks : Consider four different stocks, all of which have a required return of 20 percent and a most recent dividend of $4.40 per share. Stocks W, X, and Y are expected to maintain constant growth rates in dividends for the foreseeable future of 10 percent, ..

When was the last scheduled meeting of the fomc? : When was the last scheduled meeting of the FOMC?

Measure of individuals disposable income than taxable income : Mr. and Mrs. Jones have never made a taxable gift. They have three children and 12 grandchildren. Mr. and Mrs. Jones both have wills that leave their entire property to the other when one dies. To what extent is adjusted gross income actually a net i..

User Account

All Pages