Beta Inc. is implementing a cost-cutting proposal. The after-tax cost reduction is expected to equal $1.5 millionfor each of the three years of the project's life. The equipment has an initial cost of $3 million. The salvagevalue of the equipment is zero. The straight-line depreciation method is used for tax purposes and tax rateis 35%. Therefore the annual tax saving (i.e. tax shield) is 350,000. Assuming discount rate is 20%, what isthe NPV of the project?Select one:a. $7,532,407.41O b. $1,528,935.19O c. 1,223,966.47O d. $896,990.74O e. $611,200.00

NPV (Net Present Value) is a financial metric used to evaluate the profitability of an investment by…

Answered: Beta Inc. is implementing a…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 18E

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Similar questions

Postman Company is considering two independent projects. One project involves a new product line, and the other involves the acquisition of forklifts for the Materials Handling Department. The projected annual operating revenues and expenses are as follows: Required: Compute the after-tax cash flows of each project. The tax rate is 40 percent and includes federal and state assessments.
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?
Builders Supply, Inc.is considering adding a new product line that is expected to increase annual sales by $367,000 and expenses by $256,000. The project will require $165,000 in fixed assets that will be depreciated using the straight-line method to a zero book value over the 8-year life of the project. The company has a marginal tax rate of 34 percent. What is the depreciation tax shield?
This project will require an investment of $20,000 in new equipment. Under the new tax law, the equipment is eligible for 100% bonus deprecation at t = 0, so it will be fully depreciated at the time of purchase. The equipment will have no salvage value at the end of the project’s four-year life. Garida pays a constant tax rate of 25%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the project’s net present value (NPV) would be under the new tax law.
Daily Enterprises is purchasing a $10.33 million machine. It will cost $69,436.00 to transport and install the machine. The machine has a depreciable life of five years using the straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.10 million per year along with incremental costs of $1.19 million per year. Daily's marginal tax rate is 37.00%. The cost of capital for the firm is 13.00%. (answer in dollars..so convert millions to dollars) The project will run for 5 years. What is the NPV of the project at the current cost of capital?
Tamim Products is planning to invest in an equipment to implement a cost-cutting proposal. The pre-tax cost reduction is expected to equal $8,500 for each of the five years of the project's life. The equipment has an initial cost of $28,000 and belongs to a 25% CCA class. The company is in 30% tax bracket, the project's discount rate is 12%, and its salvage value is zero. The equipment will be sold to another company at the end of year 5 for $4,500. What is the project's profitability index (PI)? (Use the half-year rule when calculating the CCA Tax Shield. I.E use 0.5 instead of 1.5) a. 0.81 b. 0.84 C. 0.92 d. 0.98 e. 1.03
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?
Daily Enterprises is purchasing a $10.3 million machine. It will cost $53,000 to transport and install the machine. The machine has a depreciable life of five years and will have no salvage value. The machine will generate incremental revenues of $4.3 million per year along with incremental costs of $1.3 million per year. If Daily's marginal tax rate is 21%, what are the incremental earnings (net income) associated with the new machine? The annual incremental earnings are $ (Round to the nearest dollar.)
Fort requires equipment costing $320,000. It is a 9-year project, and is depreciated straight line over its life. It will will generate sales of $189,000 annually with costs of $93,500. Both the sales and costs are accurate to +/-15 percent. What is the annual OCF for the worst-case scenario if the tax rate is 40 percent?
Daily Enterprises is purchasing a $10.5million machine. It will cost $46,000 to transport and install the machine. The machine has a depreciable life of five years and will have no salvage value. The machine will generate incremental revenues of $4.3 million per year along with incremental costs of $1.5 million per year. If Daily's marginal tax rate is 21%, what are the incremental earnings (net income) associated with the new machine? The annual incremental earnings are $_____________________(Round to the nearest dollar.)
Taufel, Inc. is considering implementing a cost-cutting project. The pre-tax cost reduction is expected to be $18,000 for each of the three years of the project's life. The project has an initial cost of $40,000 and belongs in a 20% CCA class. The company has a tax rate of 32% and the discount rate for the project is 9%. The project can be sold to another company at the end of year 3 for $2,000. What is the NPV of the project? $750 $700 $675 $650 $625
Daily Enterprises is purchasing a $9.7 million machine. It will cost $54,000 to transport and install the machine. The machine has a depreciable life of 55 years and will have no salvage value. The machine will generate incremental revenues of $4.2 million per year along with incremental costs of $1.1 million per year. If Daily's marginal tax rate is 20%, what are the incremental earnings (net income) associated with the new machine?

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