Reference no: EM13903278
Analyzing cash flows from alternatives. Oceanic Boatworks is considering purchasing a new machine for $1 million at the end of Year 0 to be put into operation at the beginning of Year 1. The new machine will save $250,000, before taxes, per year from the cash outflows generated by using the old machine. For tax purposes, Oceanic will depreciate the new machine in the following amounts: $100,000 in Year 1, $300,000 in Year 2, and $200,000 per year thereafter until fully depreciated or sold. The new machine will have no salvage value at the end of Year 5.
Oceanic expects the new machine to have a market value of $400,000 at the end of three years.
If Oceanic acquires the new machine at the end of Year 0, it can sell the old one for $200,000 at that time. The old machine has a tax basis of $300,000 at the end of Year 0. If Oceanic keeps the old machine, the company will depreciate it for tax purposes in the amount of $100,000 per year for three years, when it will have no market value.
Oceanic pays taxes at the rate of 40 percent of taxable income and uses a cost of capital of 12 percent in evaluating this possible acquisition. Oceanic has sufficient otherwise- taxable income in Year 0 to save income taxes for each dollar of loss it may incur if it sells the old machine at the end of Year 0.
a. Compute the net present value of cash flows from each of the alternatives facing Oceanic Boat works.
b. Make a recommendation to Oceanic Boat works.
c. Assume that the cash flows described in the problem for Years 2 through 5 are real, not nominal, amounts, but the 12 percent cost of capital includes an allowance for inflation of 6 percent. Describe how this will affect your analysis. You need not perform new computations.
|
Prepare a schedule of cash flows for the given project
: Deriving cash flows and computing net present value. Oceana, Inc., is contemplating selling a new product. Prepare a schedule of cash flows for this project. Compute the net present value of the project.
|
|
Identify the null hypothesis and the alternative hypothesis
: Consumption of large amounts of alcohol is known to increase reaction time. Assume we want to use a 0.01 significance level to test the claim. (a) Identify the null hypothesis and the alternative hypothesis
|
|
Analyze present value of the cash flows of the alternatives
: Coalinga Hospital is considering replacing some machinery. Analyze the present value of the cash flows of the alternatives and make a recommendation to Coalinga Hospital.
|
|
Oil refineries usually experiences high pressures
: Piping used in oil refineries usually experiences high pressures and temperatures for extended periods of time, which as you all now know, leads to creep. In this problem, we are going to try and predict the stress-rupture time of a S-590 alloy steel..
|
|
Make a recommendation to oceanic boat works
: Compute the net present value of cash flows from each of the alternatives facing Oceanic Boat works. Make a recommendation to Oceanic Boat works.
|
|
Determine the test statistic
: Determine the test statistic. Show all work; writing the correct test statistic, without supporting work, will receive no credit. Determine the P-value for this test. Show all work; writing the correct P-value, without supporting work, will receive..
|
|
Calculate the net present value for each given project
: Calculate the net present value for each project using discount rates of 0, 0.04, 0.08, 0.12, 0.15, 0.20, and 0.25. What generalizations can you draw from this exercise?
|
|
Describe the channel systems used for the product
: Describe the channel systems used for the product offering of automobile insurance companies (i.e vertical marketing systme, what intermediaries are used, etc.)
|
|
How much must the old machine fetch upon resale
: How much, at a minimum, must the ‘‘old'' machine fetch upon resale at this time to make purchasing the new machine worthwhile?
|