Labor savings and depreciation tax savings

Assignment Help Financial Management

Reference no: EM13933546

Although the Chen Company's milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $28,400.00 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $9,500.00 per year. It would have zero salvage value at the end of its life. The firm's WACC is 13.75%, and its marginal tax rate is 35%.

1. What is the NPV?

2. What is the IRR?

3. Should Chen buy the machine? Based on NPV or IRR rule explains briefly.

SHOW YOUR WORK AND EXPLAIN ANSWERS.

Reference no: EM13933546

Questions Cloud

Factors that influence the choice of accounting systems : Summary of the attached power points to illustrate understanding of topics covered. 2) Find the the latest research on the topic. Resources should include journals, book , video and digital/audio resources etc. 3) Based on the latest references, c..

Determine the equation of the curve : The cable supports a unit load w which decreases from 100 lb /ft at x = 0 to 40 lb /ft at x = 30 ft with the decrease propor- tional to x2. Determine the equation of the curve assumed by the cable.

Discuss the social construction of youth : 1. Discuss the meaning of 'race' and its relationship to contemporary identities. 2. Discuss the social construction of youth and its consequences for young people's identities and cultural practices.

Assignment managing a merger : Imagine you work for Quality Corporation (Quality.ad) who has just recently bought Crescent Inc. (Crescent.ad) in a recent merger. Quality and Crescent have separate offices in St. Louis (Quality HQ), Little Rock, and Austin (Crescent HQ). Crescent a..

Labor savings and depreciation tax savings : Although the Chen Company's milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new mill..

Power points to illustrate understanding of topics : Based on the latest references, comment on trends and/or changes. Are there any significant shifts or change on how the topic has been viewed traditionally by academics and/or industry?

What is the size of each monthly payment : Ralph's Machine shop purchased a computer used in tuning engines. To finance the purchase, the company borrowed 12900 at 3% compounded annually. To repay the loan, equal monthly payments are made over two years, with the first payment due one year af..

Doctrine of innocent until proven guilty : Main Topic: Social media is a threat to the fair trial concept and indirectly the doctrine of 'innocent until proven guilty'. Social media increases the risk of 'trial by media/the public'.

User Account

All Pages