What is the after-tax salvage value of the asset

Assignment Help Financial Management
Reference no: EM132046012

The DoNotMissSnow Company is evaluating an asset that may increase sales by $120,000 every year for 4 years. There is no expected change in net operating working capital. The company's cost of capital is 6%. The proposed asset costs $400,000, will require $20,000 to modify for operations, and falls in the 3-year class MACRS for depreciation rates: .33, .45, .15, and .07 for years 1 through 4, respectively. At the end of the 4 years, it is expected that the asset may sell for $30,000. The company's tax rate is 21%. a) What is the initial outlay for this project? b) What are the operating cash flows in Years 1 through 4? c) As part of the terminal cash flow in Year 4, what is the after-tax salvage value of the asset? d) What is the net present value of this proposed asset investment? Should it be accepted or rejected?

Reference no: EM132046012

Questions Cloud

Firm becomes more risky and thus should have less debt : The combined total for the pre-merger firms because after the merger, the firm becomes more risky and thus should have less debt.
Calculate the number of shares issued through this IPO : Calculate the number of shares issued through this IPO.
Weight used for equity in computation of JackITs WACC : The bonds are selling for 97.89 percent of par, what would be the weight used for equity in the computation of JackIT's WACC?
Be sure to verify that your chosen firm has issued bonds : Be sure to verify that your chosen firm has issued bonds that are outstanding because the project involves using bond data
What is the after-tax salvage value of the asset : what is the after-tax salvage value of the asset? What is the net present value of this proposed asset investment? Should it be accepted or rejected?
Operating cash flows of combining firms results : The imperfect correlation between operating cash flows of combining firms results in decreases to value of pre-merger debt to the benefits of the shareholders.
What is the current price of european call option : What is the current price of a European call option with one year until maturity with a strike price of $160 if the risk-free rate of interest is 4%?
Find the present value of dividend stream : Given that the first dividend payment will occur 1 year from now, find the present value of the dividend stream.
Calculate the expected three-year holding- period return : Calculate the expected three-year holding- period return, the variance of the three-year holding-period return,

Reviews

Write a Review

Financial Management Questions & Answers

  How much must each insurer pay

James purchased liability insurance with a $100,000 limit from Insurer A. If this loss is settled on a pro rata basis, how much must each insurer pay?

  Achieve its targeted weighted average cost of capital

Central Systems, Inc. desires a weighted average cost of capital of 9 percent. The firm has an after-tax cost of debt of 6 percent and a cost of equity of 12 percent. What debt-equity ratio is needed for the firm to achieve its targeted weighted aver..

  Based on present worth analysis

If produced by Method A, a product’s initial capital cost will be $100,000, Based on present worth analysis at a 15% interest rate, which method should be used?

  Determine the price of the stock

Determine the price of the stock that is currently paying a $1 dividend and has a discount rate of 17% by using:

  Benefit of the remodeling project to top shelf industries

The discount rate is 10.3 percent. What is the benefit of the remodeling project to Top Shelf Industries?

  Composition of community bank investment portfolio

Explain how the composition of a community bank’s investment portfolio might differ from the composition of a large bank’s portfolio.

  The principal repayment the first year is

A fully amortized bond has a maturity of 5 years, The principal repayment the first year is:

  John jones currently holds tax-exempt bonds

John Jones currently holds tax-exempt bonds that pay 7% interest and is in the 32% tax bracket. He is considering buying taxable bonds. With all else the same, what interest rate on the taxable bonds will he need to get the same after-tax return as t..

  Coupon bond-what is the bond yield to maturity

The bond is currently selling for $908.31 and has a 2 year maturity. What is the bond's yield to maturity (YTM)?

  Find the firm debt ratio

find the firm's debt ratio (i.e., total liabilities / total assets): ROE (N/E) = 0.35 (expressed as a decimal) Debt ratio (S/A) = 4.5

  Bond price calculated from the usual bond pricing formula

What is the Macaulay duration of a 7 percent coupon bond with five years to maturity and a current price of $1,025.30? What is the modified duration? Use duration to estimate the new price of the bond. Compare your answer to the new bond price calcul..

  Contest sponsors have to deposit in the escrow account

how much do the contest sponsors have to deposit in the escrow account?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd