Reference no: EM13920007
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 $2,400, and it can be sold on an Internet auction site for $4,500 at this time. Thus, the annual depreciation expense is $2,400/6=$400 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 $8,000, and has an estimated useful life of 6 years with an estimated salvage value of $800. 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?
The old steamer -Select-should not Item 1 be replaced.
What is the NPV of the project? Round your answer to the nearest dollar.
$
|
Estimate the expected return on stocks
: Suppose that over the long run, the risk premium on stocks relative to Treasury bills has been 7.6% in the U.S. Suppose also that the current Treasury bill yield is 1.5%, but the historical average return on Treasury bills is 4.1%. Estimate the expec..
|
|
Indicate whether each event is an asset source
: Indicate whether each event is an asset source, use, or exchange transaction.
|
|
Estimate the expected return on the stock
: Use the information below to estimate the expected return on the stock of Bieber Corporation.
|
|
What is the amount of the initial cash flow at year
: The Everly Equipment Company's flange lipping machine was purchased 5 years ago for $100,000. It had an expected life of 10 years when it was bought and is being depreciated by the straight-line method by $10,000 per year. What is the amount of the i..
|
|
Depreciated on a straight-line basis
: 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. Gilbert's ..
|
|
Discuss electron beam welding
: Compare between conventional and climb milling - Draw 3 views of the turning tool showing wear zones on all views and name them and discuss electron beam welding.
|
|
Comment on the history and development of a global gaap
: Accounting is a social science. It reflects the cultural differences of the countries in which it is developed.
|
|
Identify the key elements of a lean production strategy
: Explain what a lean production system is, how it will function, and discuss the importance of a company having a lean production strategy. Identify the key elements of a lean production strategy, and discuss why each is an important ingredient to ..
|
|
Important factor that affects a firms financing mix
: 1. Which of the following is the most important factor that affects a firm's financing mix? a) The predictability of cash flows b) the number of shares that are outstanding
|