Sufficient revenue to generate tax shields from depreciation

Assignment Help Financial Management

Reference no: EM131956486

Pilot Plus Pens is deciding when to replace its old machine. The machine's current salvage value is $2.21 million. Its current book value is $1.41 million. If not sold, the old machine will require maintenance costs of $846,000 at the end of the year for the next five years. Depreciation on the old machine is $282,000 per year. At the end of five years, it will have a salvage value of $121,000 and a book value of $0. A replacement machine costs $4.31 million now and requires maintenance costs of $331,000 at the end of each year during its economic life of five years. At the end of the five years, the new machine will have a salvage value of $801,000. It will be fully depreciated by the straight-line method. In five years a replacement machine will cost $3,210,000. The company will need to purchase this machine regardless of what choice it makes today. The corporate tax rate is 34 percent and the appropriate discount rate is 9 percent. The company is assumed to earn sufficient revenues to generate tax shields from depreciation.

Calculate the NPV for the new and old machines.

Reference no: EM131956486

Questions Cloud

What would be the effect of these actions on money supply : What would be the effect of these actions on the money supply in the U.S.? Explain.

What is the tax bill for each firm : What is the tax bill for each firm? How much in additional taxes will each firm pay? Why is this amount the same?

Dodgeball lease natural gas production for the month : What was the Dodgeball lease's natural gas production for the month?

What is project internal rate of return : What is the project’s internal rate of return? What is the payback period?

Sufficient revenue to generate tax shields from depreciation : he company is assumed to earn sufficient revenues to generate tax shields from depreciation. Calculate the NPV for the new and old machines.

What is the equivalent annual cost of this equipment : Bridgton Golf Academy is evaluating new golf practice equipment. What is the equivalent annual cost (EAC) of this equipment?

What is the pretax cost of debt-after-tax cost of debt : What is the company's pretax cost of debt? Pretax cost of debt % If the tax rate is 35 percent, what is the after-tax cost of debt?

Annual equivalent cost as positive number : Enter the Annual Equivalent Cost (AEC) as a POSITIVE number for the machine that should be selected."

Evaluating proposed expansion of existing subsidiary : You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. What is the required return on franc flows?

User Account

All Pages