Evaluate the acquisition of a special-purpose machine

Assignment Help Financial Management
Reference no: EM131491877

You have been asked by the firm to evaluate the acquisition of a special-purpose machine. The machine costs $600,000. The machine will be depreciated to a zero-book value on a straight-line basis over 4 years. It will be sold at the end of year 4 for $200,000. The machine will increase initial net working capital by $20,000 for parts (none of this will be recovered). The machine will generate an additional $100,000 per year in sales (due to faster production) and will save the firm $250,000 per year in costs (enhanced efficiency). Tax rate is 40%. Cost of capital is 12%. a. Calculate the net present value and any ONE of the following other measures: internal rate of return, payback or profitability index. b. Use NPV to decide whether to acquire the machine. Explain your decision. c. Now suppose the machine falls into the 3-year MACRS class. All other assumptions are the same. MACRS depreciation rates in years 1, 2, 3 and 4 are 33.33%, 44.45%, 14.81% and 7.41% respectively. Find the NPV and compare it to the original NPV.

Reference no: EM131491877

Questions Cloud

What is her effective tax rate and current marginal tax rate : What is her average tax rate? What is her effective tax rate? What is her current marginal tax rate?
What is holding period return : During the year, the stock paid dividends of $3.96 per share. What is your holding period return?
Adjusted present value-digital organics has opportunity : Digital Organics (DO) has the opportunity to invest $1.10 million now (t = 0) and expects after-tax returns of $700,000 in t = 1 and $800,000 in t = 2.
Ignore capital gain and investment tax credit : Assume a 40% marginal tax rate for combined state and federal income taxes, and use 6% after-tax interest rate. Ignore capital gain and investment tax credit
Evaluate the acquisition of a special-purpose machine : You have been asked by the firm to evaluate the acquisition of a special-purpose machine.
Company that issues bond with a set interest rate : A company that issues a bond with a set interest rate.
Calculator method to compute the exact yield to maturity : Use the approximation formula to compute the approximate yield to maturity and use the calculator method to compute the exact yield to maturity
Find the holding period return : The prices for the White Swan Corporation for the first quarter of last year are given below. Find the holding period return (percentage return) for February.
Stock has an average annual return : Suppose a stock has an average annual return of 10% and a standard deviation of 20%. If the stock's returns are positively skewed, will above answer be correct

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