Your firm spends $498,000 per year in regular maintenance of its equipment. Due to the economic downturn, the firmconsiders forgoing these maintenance expenses for the next 3 years. If it does so, it expects it will need to spend $2.1million in year 4 replacing failed equipment.a. What is the IRR of the decision to forgo maintenance of the equipment?b. Does the IRR rule work for this decision?c. For what costs of capital (COC) is forgoing maintenance a good decision?a. What is the IRR of the decision to forgo maintenance of the equipment?The IRR of the decision is%. (Round to two decimal places.)

IRR refers to the internal rate of return at which the net present value is zero. It is the…

Answered: Your firm spends $498,000 per year in…

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter10: Long-lived Tangible And Intangible Assets

Section: Chapter Questions

Problem 8Q

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Your firm spends $447,000 per year in regular maintenance of its equipment. Due to the economic downturn, the firm considers forgoing these maintenance expenses for the next 3 years. If it does so, it expects it will need to spend $1.9 million in year 4 replacing failed equipment. a. What is the IRR of the decision to forgo maintenance of the equipment? b. Does the IRR rule work for this decision? c. For what costs of capital (COC) is forgoing maintenance a good decision?
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Your firm spends $600,000 per year (end of the year payment) in regular maintenance of its equipment. Due to the COVID-19 economic downturn, the firm considers forgoing these maintenance expenses for the next three years. If it does so, it expects it will need to spend $2.7 million in year 4 (end of the year payment) replacing failed equipment. Can IRR be applied in this decision? Answer For what MARR is forgoing maintenance a good decision?
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Miller Corporation is considering replacing a machine. The replacement will reduce operating expenses (that is, increase earnings before depreciation, interest, and taxes) by $24,000 per year for each of the 5 years the new machine is expected to last. Although the old machine has zero book value, it can be used for 5 more years. The depreciable value of the new machine is $60,000. The firm will depreciate the machine under MACRS using a 5-year recovery, view table attached, and is subject to a 40% tax rate. Estimate the incremental operating cash inflows generated by the replacement. (Note: Be sure to consider the depreciation in year 6.)
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