A start-up biotech company is considering making an investment of $100,000 in a new filtration system. The associated estimates are summarized below: EOY Annual receipts Annual expenses Useful life 8 years Terminal book value (BOY 8) $20,000 Terminal market value $0 Hint: marke value below terminal book value means tax credit. Straight-line depreciation will be used, and the effective income tax rate is 20%. The after-tax MARR is 10% per year. Determine whether this investment is an attractive option for the company. Complete the end of year (EOY) cash flow table and use it to solve the problem BTCF $75,000 $45,000 0 1-8 8 BTCF: Before tax cash flow ATCF: After tax cash flow Depriciation Taxable income Income tax ATCF

A start-up biotech company is considering making an investment of $100,000 in a new filtration system. The associated estimates are summarized below: EOY Annual receipts Annual expenses Useful life 8 years Terminal book value (BOY 8) $20,000 Terminal market value $0 Hint: marke value below terminal book value means tax credit. Straight-line depreciation will be used, and the effective income tax rate is 20%. The after-tax MARR is 10% per year. Determine whether this investment is an attractive option for the company. Complete the end of year (EOY) cash flow table and use it to solve the problem BTCF $75,000 $45,000 0 1-8 8 BTCF: Before tax cash flow ATCF: After tax cash flow Depriciation Taxable income Income tax ATCF

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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ACDC Company is considering the installation of a new machine that costs $150,000. The machine is expected to lead to net income of $44,000 per year for the next 5 years. Using straight-line depreciation, $0 salvage value, and an effective income tax rate of 28%, determine the after-tax rate of return for this investment. If the company’s after-tax MARR rate is 12%, would this be a good investment or not?
A start-up biotech company is considering making an investment of $100,000 in a new filtration system. The associated estimates are summarized below:Annual receipts $75,000Annual expenses $45,000Useful life 8 yearsSalvage value $20,000 Straight line depreciation will be used, and the effective income tax rate is 20%. The MARR is 15% per year. Determine whether this investment is an attractive option for the company.
1. A start-up biotech company is considering making an investment of $100,000 in a newfiltration system. The associated estimates are summarized below: Annual receipts $75,000Annual expenses $45,000Useful life 8 yearsSalvage value $20,000 Straight line depreciation will be used, and the effective income tax rate is 20%. The After-tax MARR is 15% per year. Determine whether this investment is an attractive option for the company.
An after-tax analysis for a new $50,000 machine proposed for a fiber opticsmanufacturing line is in process. The CFBT for the machine is estimated at$20,000. If a recovery period of 5 years applies, use the present-worth-of-taxes criterion, an effective tax rate of 35%, and a return of 8% per year to compare the following: straight line, DDB, and MACRS depreciation. Use a 6-year period to accommodate the MACRS half-year convention.
A start-up biotech company is considering making an investment of $100,000 in a new filtration system. The associated estimates are summarized below: Annual receipts $75,000 Annual expenses $45,000 Useful life 8 years Salvage value $20,000 Straight line depreciation will be used, and the effective income tax rate is 20%. The Aftertax MARR is 15% per year. Determine whether this investment is an attractive option for the company.
Esc You consider purchasing a new piece of equipment (7yr MACRS property) for your manufacturing process for $120,000. The equipment has a 6-year useful life and no salvage value. The equipment is expected to generate an additional $40,000 of net income before taxes and depreciation each year by using this upgraded system. The combined federal and state income tax rate= 35%. Annual inflation = 4%. a. Fill in the following table assuming MACRS depreciation rates Year 46°F Rain showers 0 1 F1 2 O 2 3 4 5 Pretax income 6 MACRS Taxable Depreciation income F2 - F3 + F4 Ⓡ b. If your MARR = 12%, should you purchase this system based on your real after-tax income? Why or why not? F5 8 C B Tax owed F6 Q Search G After tax income F7 Ca 7 F8 O Inflation adjustment factor O F9 ala LG F10 Real after tax income 0 A I THE F11 - 0 1 asod F12 + Prt Sc ScrLk Post-it sod Ins Post-it Del Backspace Post-it PgUp Home asod> Post-it Mumi 1-10 PgOn End Pause Break 11-15 11-15 C
A road construction company is considering the purchase of a gravel hauler as it prepares for a new season of rural road construction. The hauler will cost $110,000, last six years with a salvage value of $20,000, and reduce annual maintenance, insurance, and labour costs by $30,000 per year. The after-tax MARR is 9% and the corporate tax rate is 55%. a. What is the exact after-tax IRR for this purchase? b. What is the approximate after-tax IRR for this purchase? c. Should the company buy the gravel hauler? Why or why not?
A business is considering purchasing a piece of new equipment for $200,000. The equipment will generate the following revenues: Year 1: $50,000Year 2: $50,000Year 3: $50,000Year 4: $60,000The machine can be sold at the end of the year four for $25,000. Assume a discount of 8%. 2. What is the compounded return(IRR) for this project?
Palmer Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $164,900. The equipment will have an initial cost of $485,000 and have a 7 year life. If the salvage value of the equipment is estimated to be $9,000, what is the accounting rate of return? Multiple Choice 34.00% 23.28% 156.37% 51.11%
Homer Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $164,800. The equipment will have an initial cost of $515,000 and have a 5-year life. If the salvage value of the equipment is estimated to be $11,000, what is the annual net cash flow? Multiple Choice $153,800 $64,000 $265,600 $175,800
Degemes Corporation is considering investing $33,000 in a new machine . The machine is expected to last five years and to have a residual value of \$8.000 Annual tax net cash inflow from the machine is expected to be $ 7,000 . Degernes Corporation's income tax rate is 40% Calculate the accounting rate of return (Round your answer to the nearest tenth of a percent ) (Note : The accounting rate of return is called the unadjusted rate of return in your textbook ) 9.8% 20.5% 5.9 % None of the listed choices are correct 9.6%
Wilson Corp, is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $50,000. The equipment will have an initial cost of $600,000 and have an 8-year life. The salvage value of the equipment is estimated to be $100,000. If the hurdle rate is 10%, what is the approximate net present value? (Future Value of $1. Present Value of $1. Future Value Annuity of $1. Present Value Annuity of $1.) (Use appropriate factor from the PV tables. Round your final answer to the nearest dollar amount.) Multiple Choice $500,000 $46,826 $100,000 Less than zero

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