Zero taxpaying position for the foreseeable future

Assignment Help Financial Management

Reference no: EM131923671

New diesel locomotives will cost a railroad $600,000 each and can be depreciated straight-line over their five-year life. Using a diesel instead of a coal-fired steam locomotive will save $12,000 annually in operating expenses. Railroads have a required rate of return of 10 percent and a tax rate of 40 percent.

a. What is the maximum price a railroad would be willing to pay for a coal-fired steam locomotive? (Hint: Set up the cash flows for a coal-fired locomotive at a price of P, including depreciation, and then compare them to the incremental cash flows associated with a diesel costing $600,000.)

b. Will your answer to (a) change if the railroad has enormous tax-loss carryforwards that put it in a zero taxpaying position for the foreseeable future?

Reference no: EM131923671

Questions Cloud

Use the afn formula to calculate the additional funds needed : Super X has current sales of 5,000,000, expects a 20% increase in sales and has assets of 3,000,000. Use the AFN formula to calculate additional funds needed.

The firm marginal federal plus state tax rate : Based on this information, determine Super X's after-tax cost of debt if the firm's marginal federal plus state tax rate is 35%?

Payback method-assuming machines are mutually exclusive : Under the payback method and assuming these machines are mutually exclusive, which machine(s) would Trenton Corp. choose?

Held liable for the torts of employees : Torts. Jennifer Hoffman took her cell phone to a store owned by R&K Trading, Inc., for repairs. Can R&K be held liable for the torts of its employees?

Zero taxpaying position for the foreseeable future : Will your answer to (a) change if the railroad has enormous tax-loss carryforwards that put it in a zero taxpaying position for the foreseeable future?

What portion is allocated to net intangible assets : Of the total assets acquired, what portion is allocated to net intangible assets?

The profitability index will give same investment decision : The profitability index will give the same investment decision as

What is the net debit to jeremiah account at time : What is the net debit to Jeremiah’s account at time 0? Sketch the payoff function for Jeremiah’s position.

How recent or potential regulations will affect performance : What are main uses of funds by HFC? Summarize any statements made by HFC in annual report about how recent or potential regulations will affect performance.

User Account

All Pages