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

Why do individual bolts relax a bit when first tightened

Why do individual bolts relax a bit when first tightened? Name several factors that can increase the relaxation ? Which will tend to loose more preload after initial tightening, a short bolt or a long bolt? 8. What are t ...

For the correlational study described in problem 2 describe

For the correlational study described in Problem 2, describe how a third variable, such as family income or parents' educational level, might explain the relationship between academic performance and breakfast quality. E ...

1 describe the major difference between within-subjects and

1. Describe the major difference between within-subjects and between-subjects designs. 2. Describe the advantages of the within-subjects design. 3. Describe the disadvantages of the within-subjects design. 4. Explain how ...

You borrow 75000 for 30 years at 11 interest compounded

You borrow $75,000 for 30 years at 11% interest compounded annually. 1. The value of the property is $100,000, PGI= $20,000, vacancy rates are 8%, and operating expenses are $81,000. 2. Calculate the annual debt service. ...

1 describe why teams are being formed more frequently in

1. Describe why teams are being formed more frequently in business today. What are some of the special considerations required for a team to be successful? 2. Defend a position on the following question: Does radical org ...

1 if the exchange rate between the yen and the dollar

1. If the exchange rate between the yen and the dollar changes from ¥80 = $1 to ¥90 = $1, is this good news for Sony? Is it good news for U.S. consumers? Is it good news for U.S. firms that export to Japan? Is it good ne ...

A column in the wall street journal observes that while

A column in the Wall Street Journal observes that "while many people buy stocks in the hope of scoring profits down the road, dividends deliver cash right now." If stockholders desire dividends, why do some firms, such a ...

In the absorption of component a from an air stream into an

In the absorption of component A from an air stream into an aqueous stream, the composition of the two adjacent streams were analyzed to be c A ; L = 4:0 kg mol/m 3  and p A ; G = 1:013 × 10 4  Pa. The Henry's law consta ...

Assume that you are the manager of a financially distressed

Assume that you are the manager of a financially distressed corporation, with $1.5 million in debt outstanding, which will mature in two months. Your firm currently has $1 million cash on hand. Assuming that you are oper ...

Once a project is accepted country risk analysis for the

Once a project is accepted, country risk analysis for the foreign country involved is no longer necessary, assuming that no other proposed projects are being evaluated for that country. Do you agree with this statement? ...

  • 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