Builtrite purchased its current machine 3 years ago at a cost of $30,000 with an additional $5,000 in shipping and installationcosts and $3,000 in training unique to this new machine. The machine is being depreciated down to zero during its five-yearlife. Today, Builtrite is thinking of selling this machine for $20,000. If Builtrite is in the 34% tax bracket, what are the taximplications for the sale?O $340 tax owedO $340 tax benefitO $2040 tax owedO 52040 tax benefit

When a machine is sold, there will be a capital gain/loss. The tax is calculated as per the capital…

Answered: Buitrite purchased its current machine…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 11P

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Alfredo Company purchased a new 3-D printer for $900,000. Although this printer is expected to last for ten years, Alfredo knows the technology will become old quickly, and so they plan to replace this printer in three years. At that point, Alfredo believes it will be able to sell the printer for $15,000. Calculate yearly depreciation using the double-declining-balance method.
The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
Martin D. Martian Inc. is considering the purchase of a new argyle sock knitting machine to replace a less automated one. The new machine will cost $250,000 plus $30,000 for shipping and $16,000 installation. The machine being replaced was purchased five years ago for $180,000 and depreciated as a 7-year MACRS property. It can be sold for $64,000. Martin has a marginal tax rate of 40%. Compute the NINV for the project. Use the rounded MACRS schedule listed below: (7-Year Depreciation Schedule: 14%, 25%, 18%, 12%, 9%, 9%, 9%, 4%)
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Moore & Moore (MM) is considering the purchase of a new machine for $50,000, installed. MM will use the MACRS accelerated method to depreciate the machine, which is classified as 5-year property (see the following MACRS table for depreciation rates). MM expects to sell the machine at the end of its 4-year operating life for $10,000. If MM's marginal tax rate is 40%, what will the after-tax cash flow be when it disposes of the machine at the end of Year 4? Annual depreciation rates for years 1 through 6 are respectively as follows: 20%, 32%, 19%, 12%, 11%, 6%. A. $7,656 B. $8,059 C. $8,484 D. $8,930 E. $9,400
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Garrison Corporation is considering the replacement of an old machine that is currently being used. The old machine has a book value of $28,000. If Garrison decides to replace the old machine, Picco Company has offered to purchase it for $60,000 on the replacement date. Garrison has a tax rate of 40%. What is the after-tax cash flow associated with the salvage ofthe old machine? A. $32,000B. $36,000C. $47,200D. $40,800
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Builtrite is considering the purchase of a new five-year machine worth $90,000. It will cost another $10,000 to install the machine and Builtrite will need to keep an extra $9,000 in inventory on hand due to the machine's efficiency. The current machine being used is 5 years old and originally cost $60,000 and is being depreciated down to zero over a 10-year period. If the current machine were sold today, it could be sold for $45,000. In five years, the new machine is estimated to have a salvage value of $36,000. Two employees will need to be trained for the new machine at a cost of $4000. The new machine is expected to produce $80,000 in annual savings. Builtrite is in the 34% tax bracket. What is the terminal cash flow for the new machine? O $23.760 O $31,800 O $32,760
As a result of improvements in product engineering, United Automation is able to sell one of its two milling machines. Both machines perform the same function but differ in age. The newer machine could be sold today for $56,000. Its operating costs are $20,800 a year, but at the end of five years, the machine will require a $19,600 overhaul (which is tax deductible). Thereafter, operating costs will be $30,400 until the machine is finally sold in year 10 for $5,600. The older machine could be sold today for $25,400. If it is kept, it will need an immediate $22,000 (tax-deductible) overhaul. Thereafter, operating costs will be $31,900 a year until the machine is finally sold in year 5 for $5,600. Both machines are fully depreciated for tax purposes. The company pays tax at 21%. Cash flows have been forecasted in real terms. The real cost of capital is 8%. a. Calculate the equivalent annual costs for selling the new machine and for selling the old machine. (Do not round intermediate…
A project has to sell a machine that is obsolete. The market department finds a buyer who is willing to pay $100, 000 for the machine. The machine was purchased 4 years ago for $1.1 million. The accounting department notes that the depreciation method for this machine is straight line, and the machine will be depreciated to zero over a five year time period after purchase. What is the machine's after - tax salvage value? Tax rate is 21%. Question 1 options: $1, 635.24 $2, 314.05 $142,000.00 - $2,784.62$289.26

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