Ask Question, Ask an Expert

+61-413 786 465

info@mywordsolution.com

Ask Basic Finance Expert

CAPITAL BUDGETING ASSIGNMENT

Clemente Cement Company is contemplating the purchase of a new mixer to replace its existing mixer. The original mixer was purchased two years ago at an installed cost of $60,000; it was being depreciated under MACRS using a five year recovery period (20%, 32%, 19%, 12%, 12% and 5%). The existing mixer is expected to have a usable life of 5 more years. The new mixer costs $105,000 and requires $5,000 in installation costs. It has a 5-year usable life and would be depreciated under MACRS using a five year recovery period (same as old mixer).

Clemente can currently sell the existing grinder for $ 70,000 without incurring any cleanup or removal costs. To support the increased business resulting from the purchase of a new mixer, accounts receivable would increase by $40,000, inventories by $30,000 and accounts payable by $58,000. At the end of five years, the existing mixer would have a market value of zero; the new mixer would be sold to net $29,000 after removal and clean up costs and before taxes. The company is subject to a 40% tax rate.

The estimated earnings before depreciation, interest and taxes over the five years for both the new and existing mixer are below:

YEAR

New Mixer

Existing Mixer

1

$43,000

$26,000

2

$43,000

$24,000

3

$43,000

$22,000

4

$43,000

$20,000

5

$43,000

$18,000

With the information provided, calculate:

1. The initial investment associated with replacement of the old machine with the new one.

2. The incremental operating cash flows associated with the proposed replacement (be sure to consider the depreciation in year 6)

3. The terminal cash flow expected at the end of year 5 from the proposed mixer replacement.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M92573250

Have any Question?


Related Questions in Basic Finance

Georgia a widow has take-home pay of 2000 a week her

Georgia, a widow, has take-home pay of $2,000 a week. Her disability insurance coverage replaces 70 percent of her earnings after a four-week waiting period. What amount would she receive in disability benefits if an ill ...

Question - assume that your father is now 40 years old that

Question - Assume that your father is now 40 years old, that he plans to retire in 20 years, and that he expects to live for 25 years after he retires, that is until he is 85. He wants a fixed retirement income that has ...

These two companies are investigating similar projects but

These two companies are investigating similar projects (but not both projects) in which they will invest. The characteristics of the two systems are given below: Project 1                    Project 2 Initial Outlay (IO) ...

Last year you bought a bond for 1050 it was a 20 year 7

Last year you bought a bond for $1,050. It was a 20 year 7% coupon rate bond with yield-to-maturity of 6.54%. It's face value is $1,000. This year you want to sell the bond. Bonds with similar maturity and risk profile n ...

Corporate finance assignment -question 1 a assume that you

Corporate Finance Assignment - Question 1: a) Assume that you will deposit $4000 at the end of each of the next three years in a St. George bank account paying 8% interest. You currently have $7000 in the account. How mu ...

A local attorney has unfortunately learned that he has been

A local attorney has unfortunately learned that he has been seriously conned by Bernie Madoff for many years. The attorney invested $400,000 with Madoff 18 years ago and had been led to believe that his annual return was ...

Question utilizing the concepts learned throughout the

Question: Utilizing the concepts learned throughout the course, write a Final Paper on one of the following scenarios: • Option One: You are a consultant with 10 years experience in the health care insurance industry. A ...

What is assumptions underlying single index model and why

What is assumptions underlying Single index model and why use thoes assumptions? Compare assumptions of Single Index Model with other formula?

A stock price is currently 20 and at the end of 3 months it

A stock price is currently $20, and at the end of 3 months it will increase or decrease by 10%. The risk free rate is 5% per year (continuous compounding). Assume that ST is the price at the end of 3 months. what is the ...

You are given the following quotesusnbspdollarmexican

You are given the following quotes: U.S. dollar/Mexican Peso = 0.4637 U.S. dollar/Australian Dollar = 0.6921 U.S dollar/Chinese Yuan = 0.1825 What is the Chinese Yuan/Australian Dollar cross rate? How to find net float i ...

  • 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

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As