Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

problem: A firm is considering the buy of a new equipment to replace the one that is currently in use. It has gathered the following data on each of these equipments:

The equipment currently in use was originally purchased two years ago for dollar 40,000. It is being depreciated under the modified accelerated cost recovery system [MACRS] using a five year recovery period, and has three years of usable life remaining. The current equipment can be sold today to net $42,000 after removal & cleanup costs. However, in 3 years [at the end of three year] the market value of the old equipment will be zero. The firm's earnings before depreciation, interest & taxes [EBDIT] are expected to be dollar 70,000 for each of the next three years if the old equipment is kept in use. 

The new equipment can be purchased at a price of $140,000 & requires $10,000 to install. It has a three year usable life & will be depreciated under the MACRS using a three year recovery period. If the new equipment is acquired, the investment in accounts receivable will be expected to rise by $10,000, the inventory investment will increase by $25,000, & accounts payable will increase by $15,000. At the end of three years, the new equipment could be sold to net $35,000 before taxes. Earnings before depreciation, interest & taxes (EBDIT) are expected to be as follows with the new equipment:

 Year

EBDIT

1

$120,000

2

$130,000

3

$130,000

The firm is subject to a 40% tax rate.

[A] Determine the initial investment associated with the proposed replacement decision.

[B] Compute the incremental operating cash inflows for Years 1 to 4 associated with the proposed replacement. [Note: Only depreciation cash flows must be considered in Year 4].

[D] Compute the terminal cash flow associated with the proposed replacement decision. [Note: This is at the end of Year 3].

[E] Depict on a time line the relevant cash flows found in parts a, b, & c that are associated with the proposed replacement decision, assuming it is terminated at the end of Year 3. 

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M918510

Have any Question? 


Related Questions in Basic Finance

Go to financeyahoocom and enter the name of your favorite

Go to finance.yahoo.com and enter the name of your favorite stock (Apple, Microsoft, Google, or whatever) in the Get Quotes box at the top left of the screen. As you enter the stock name, notice the stock ticker symbols ...

1 why do self-report scales use many different items that

1. Why do self-report scales use many different items that assess the same conceptual variable? 2. Consider a measure that shows high internal consistency but low test-retest reliability. What can be concluded about the ...

Assume that you have an opportunity to visit a civilization

Assume that you have an opportunity to visit a civilization in outer space. Its society is at roughly the same stage of development as U.S. society is now. Its economic system is virtually identical to that of the United ...

A hedge fund is currently engaged in a plain vanilla euro

A hedge fund is currently engaged in a plain vanilla euro swap in which it pays euros at the euro floating rate of Euribor and receives euros fixed. It would like to convert this position into one in which it pays the re ...

1 what do you see as the biggest challenges in conducting a

1. What do you see as the biggest challenges in conducting a brand audit? What steps would you take to overcome them? 2. Pick a brand. See if you can assemble a brand inventory for it.

1 what is the role of finance in a strategic plan2 what are

1) What is the role of finance in a strategic plan? 2) What are operating and financial plans? Please elaborate

1 what are the tensions between standardization and

1. What are the tensions between standardization and localization of the PM system of the MNE? 2. How does the international character of the MNE impact the design of the PM system? 3. How does the international characte ...

Statisticsa statistical post-mortem of subprime

STATISTICS A statistical post-mortem of subprime mortgages Subprime mortgages were prominent business news in 2007 and 2008 during the meltdown in the financial markets.  A subprime mortgage is a home loan made to a risk ...

Both old line industries and new tech inc use the irr to

Both Old Line Industries and New Tech, Inc., use the IRR to make investment decisions. Both firms are considering investing in a more efficient $4.5 million mail-order processor. This machine could generate after-tax sav ...

List three ways to control preload directly what are the

List three ways to control preload directly ? What are the advantages of a bonded ultrasonic transducer? What is sometimes cited as a disadvantage? Can torque be used to tighten a 6 in. diameter bolt? If not, why not? Na ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen