What is sell the old- net of tax and buy the new value

Assignment Help Financial Management

Reference no: EM131904335

The ABD company is considering the purchase of a new machine to replace an out of date machine that has a book value of $18000 and can be sold today for $2,000. The old machine is being depreciated on a straightline basis over 4 more years to a book value of $2000 at the end of the fourth year. The old machine generates annual revenues of $105000 and annual expenses of $75000. This machine requires a fixed investment of $5000 in net working capital. The proposed new machine has an installed and depreciable cost of $125,000 and will be depreciated by 3-yr. ACRS class rules using these percentages: .3334, .4444, .1481, .0741 over the Four years that the machine will be used. The new machine will require a fixed investment of $10500 in net working capital. It is expected to generate annual revenue of $180,000 and annual cash expenses of $90000. If the old machine is used for four more years, it is expected to have only a cash market value of $1500 at the end of the fourth year. The new machine expected to have a cash market value of $42,500. Working capital investments for both machines consists primarily of tools and spare parts that can be sold for full value at any time the machines are retired.

The marginal tax rate is 40%. The appropriate discount rate is 12.5%.

ANSWER THESE QUESTIONS:

1. What is the "Buy the New" value?

2. What is "Sell the old- net of tax?"

3. What is the Initial Outlay?

4. What is the change in revenue for year 2?

5. What is the change in expenses for year 2?

6. What is the Change in Depreciation for year 2?

7. What is the Change in Taxes for year 2?

8. What is the Operating Cash flow for Year 4?

9. What are the Terminal Cash flows for year 4?

10. Is this an acceptable project (and why - what values support you answer?)

Reference no: EM131904335

Questions Cloud

What is best guess as to rate of return on stock : A stock with a beta of 1.2 has an expected rate of return of 16%. what is your best guess as to the rate of return on the stock?

What price will the stock reach equilibrium : At what price will the stock reach an “equilibrium” at which it is perceived as fairly priced today?

What must be investors expectation of the price of stock : If the stock is perceived to be fairly priced today, what must be investors’ expectation of the price of the stock at the end of the year?

What was the inflation rate for the period : If the nominal GDP was reported at $133.2 billion and real GDP was reported at $129.8 billion, what was the inflation rate for the period?

What is sell the old- net of tax and buy the new value : What is the "Buy the New" value? What is "Sell the old- net of tax?" What is the change in revenue for year 2?

Interest rates is directly controlled by federal reserve : Which of the following interest rates is directly controlled by the Federal Reserve?

Process of moving investments between sectors of economy : The process of moving investments between sectors of the economy over time is called.

Sector has high sensitivity to the business cycle : Which sector has a high sensitivity to the business cycle?

For independent projects : Which of the following was the largest sector in the S&P as of April 2012? For independent projects:

User Account

All Pages