Evaluate the expansion proposal using the net present value

Reference no: EM13484323 , Length: 20

A company wants to expand its operations. One capital investment proposal under consideration is the acquisition of additional equipment. The cost of initial investment is estimated to be $75,000 with useful life of 6 years and the disposal value of $15,000. Straight-line depreciation method will be used for both financial and tax purposes.

The expansion will bring in an estimated $38,000 cash every year; the annual operating expenses are around $17,000. At the end of the third year, a one-time tune-up is required for a cost of $8,000. Because of the expansion, working capital in the amount of $14,000 must be committed.

The tax rate and the discount rate are 40 percent and 12 percent, respectively.

Required:

1. Evaluate the expansion proposal using the net present value analysis.

2. Assume that at the end of the fourth year, because of unforeseen reasons, the equipment is salvaged for $50,000. What are the tax consequences of the disposal?

Reference no: EM13484323

Questions Cloud

Prepare four line graphs with the ratio on the vertical : solvency and profitability trend analysisitzkoff company has provided the following comparative

The company uses straight-line method to calculate its : kahn industry inc. decides to add a new machine to its assembly line. the new machine costs 120000 with a useful life

Capm in the capital asset pricing model capm a securitys : capm in the capital asset pricing model capm a securitys expected return isa. the return on the market portfoliob. the

For each of parts 1 to 5 a prepare the necessary journal : the following selected items and amounts were taken from the balance sheet of quale company as of december 31 2012cash

Evaluate the expansion proposal using the net present value : a company wants to expand its operations. one capital investment proposal under consideration is the acquisition of

Capm a financial markets security market line sml describes : capm a financial markets security market line sml describesa. the relationship between systematic risk and expected

Mf corp has an roe of 16 and a plowback ratio of 50 if the : mf corp. has an roe of 16 and a plowback ratio of 50. if the coming year earning are expected to be 2 per share e12

Security risk the systematic risk principle states that the : security risk the systematic risk principle states thata. systematic risk doesnt matter to investorsb. systematic risk

Portfolio return according to the capm what is the rate of : portfolio return according to the capm what is the rate of return of a portfolio with a beta of 1?a. between rm and

User Account

All Pages