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lMiller Dental, Inc., is considering replacing its existing laser checking system, which was purchased 3 years ago at a cost of $568,000. The laser checking can be sold today for a lump sum of $253,000. It is being depreciated using MACRS and a 5-year recovery period (see MACRS table at the end of slides for depreciaition rates). A new laser checking system will cost $870,000 to purchase and install. Replacement of the planned laser checking system would not involve any change in net working capital. Assuming a 20% tax rate, calculete the initial investment associated with the replacement project.
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- Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $190,000, a 3-year expected life, and after-tax cash flows (labor savings and depreciation) of $87,000 per year; and Machine 360-6, which has a cost of $360,000, a 6-year life, and after-tax cash flows of $98,300 per year. Knitting machine prices are not expected to rise because inflation will be offset by cheaper components (microprocessors) used in the machines. Assume that Filkins’ cost of capital is 14%. Should the firm replace its old knitting machine? If so, which new machine should it use? By how much would the value of the company increase if it accepted the better machine? What is the equivalent annual annuity for each machine?Central Laundry and Cleaners is considering replacing an existing piece of machinery with a more sophisticated machine. The old machine was purchased 3 years ago at a cost of $50,600, and this amount was being depreciated under MACRS using a 5-year recovery period. The machine has 5 years of usable life remaining. The new machine that is being considered costs $75,200 and requires $3,900 in installation costs. The new machine would be depreciated under MACRS using a 5-year recovery period. The firm can currently sell the old machine for $55,300 without incurring any removal or cleanup costs. The firm is subject to a tax rate of 21%.The revenues and expenses (excluding depreciation and interest) associated with the new and the old machines for the next 5 years are given in the table attached. . (The second table1894 contains the applicable MACRS depreciation percentages.) Note:The new machine will have no terminal value at the end of 5 years. a. Calculate the initial cash flow…Vastine Medical, Inc., is considering replacing its existing computer system, which was purchased 2 years ago at a cost of $322,000. The system can be sold today for $201,000. It is being depreciated using MACRS and a 5-year recovery period (see the table attached).A new computer system will cost $505,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 21% tax rate on ordinary income and capital gains. a. Calculate the book value of the existing computer system. b. Calculate the after-tax proceeds of its sale for $201,000. c. Calculate the initial cash flow associated with the replacement project.
- Huntington Medical Center purchased a used lowfield MRI scanner 2 years ago for $445,000. Its operating cost is $272,000 per year and it can be sold for $150,000 anytime in the next 3 years. The Center’s director is considering replacing the presently owned MRI scanner with a state-of-the-art 3 Tesla machine that will cost $2.2 million. The operating cost of the new machine will be $340,000 per year, but it will generate extra revenue that is expected to amount to $595,000 per year. The new unit can probably be sold for $800,000 three years from now. You have been asked to determine how much the presently owned scanner would have to be worth on the open market for the AW values of the two machines to be the same over a 3-year planning period. The Center’s MARR is 20% per year.Vastine Medical, Inc., is considering replacing its existing computer system, which was purchased 2 years ago at a cost of $318,000. The system can be sold today for $203,000. It is being depreciated using MACRS and a 5-year recovery period (see the table). A new computer system will cost $506,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 21% tax rate on ordinary income and capital gains. a. Calculate the book value of the existing computer system. b. Calculate the after-tax proceeds of its sale for $203,000. c. Calculate the initial cash flow associated with the replacement project. Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year* Recovery year 3 years 5 years 7 years 10 years 1 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 5 12% 9% 9% 6 5% 9% 8% 7 9%…Commercial Hydronics is considering replacing one of its larger control devices. A new unit sells for $32,000 (delivered). An additional $4,000 will be needed to install the device. The new device has an estimated 18-year service life. The estimated salvage value at the end of 18 years will be $2,000. The new control device will be depreciated as a 7-year MACRS asset. The existing control device (original cost = $15,000) has been in use for 9 years, and it has been fully depreciated (that is, its book value equals zero). Its scrap value is estimated to be $2,500. The existing device could be used indefinitely, assuming the firm is willing to pay for its very high maintenance costs. The firm's marginal tax rate is 40 percent. The new control device requires lower maintenance costs and frees up personnel who normally would have to monitor the system. Estimated annual cash savings from the new device will be $5,000. The firm's cost of capital is 10 percent. What is the NPV?
- Commercial Hydronics is considering replacing one of its larger control devices. A new unit sells for $27,000 (delivered). An additional $4,000 will be needed to install the device. The new device has an estimated 17-year service life. The estimated salvage value at the end of 17 years will be $2,000. The new control device will be depreciated as a 7-year MACRS asset. The existing control device (original cost = $20,000) has been in use for 11 years, and it has been fully depreciated (that is, its book value equals zero). Its scrap value is estimated to be $2,000. The existing device could be used indefinitely, assuming the firm is willing to pay for its very high maintenance costs. The firm's marginal tax rate is 40 percent. The new control device requires lower maintenance costs and frees up personnel who normally would have to monitor the system. Estimated annual cash savings from the new device will be $10,000. The firm's cost of capital is 12 percent.Evaluate the relative merits…Sampson Corporation is contemplating the purchase of a new high-speed widget grinder to replace the existing grinder. The existing grinder was purchased two years ago at an installed cost of $60,000; it was being depreciated under MACRS, using a five year recovery period. The existing grinder is expected to have a usable life of five more years. The new grinder has a cost of $105,000 and requires $5,000 in installation costs; it has a five year usable life and would be depreciated under MACRS, using a five year recovery period. Sampson can currently sell the existing grinder for $70,000 without incurring any removal and cleanup costs. To support theincreased business resulting from the purchase of the new grinder, 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 grinder would have a market value of zero; the new grinder would be sold to net $29,000 after removal and clean up costs and before…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
- Aerotron Electronics is considering purchasing a water filtration system to assist in circuit board manufacturing. The system costs $40,000. It has an expected life of 7 years at which time its salvage value will be $7,500. Operating and maintenance expenses are estimated to be $2,000 per year. If the filtration system is not purchased, Aerotron Electronics will have to pay Bay City $12,000 per year for water purification. If the system is purchased, no water purification from Bay City will be needed. Aerotron Electronics must borrow half of the purchase price, but they cannot start repaying the loan for 2 years. The bank has agreed to three equal annual payments, with the first payment due at the end of year 2. The loan interest rate is 8% compounded annually. Aerotron Electronics’ MARR is 10% compounded annually. a. What is the present worth of this investment? b. What is the decision rule for judging the attractiveness of investmentsbased on present worth? c. Should Aerotron…Commercial Hydronics is considering replacing one of its larger control devices. A new unit sells for $29,000 (delivered). An additional $3,000 will be needed to install the device. The new device has an estimated 20-‐year service life. The estimated salvage value at the end of 20 years will be $2,000. The new control device will be depreciated as a 7-‐year MACRS asset. The existing control device (original cost = $15,000) has been in use for 12 years, and it has been fully depreciated (that is, its book value equals zero). Its scrap value is estimated to be $1,000. The existing device could be used indefinitely, assuming the firm is willing to pay for its very high maintenance costs. The firm’s marginal tax rate is 40 percent. The newcontrol device requires lower maintenance costs and frees up personnel who normally would have to monitor the system. Estimated annual cash savings from the new device will be $9,000. The firm’scost of capital is 12 percent. Evaluate the relative merits…Aerotron Electronics is considering the purchase of a water filtration system to assist in circuit board manufacturing. The system costs $40,000. It has an expected life of 7 years at which time its salvage value will be $7,500. Operating and maintenance expenses are estimated to be $2,000 per year. If the filtration system is not purchased, Aerotron Electronics will have to pay Bay City $12,000 per year for water purification. If the system is purchased, no water purification from Bay City will be needed. Aerotron Electronics must borrow half of the purchase price, but they cannot start repaying the loan for 2 years. The bank has agreed to three equal annual payments, with the first payment due at end of year 2. The loan interest rate is 8% compounded annually. Aerotron Electronics’ MARR is 10% compounded annually. Solve, a. What is the internal rate of return of this investment? b. What is the decision rule for judging the attractiveness of investments based on internal rate of…
