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Paha777 [63]
3 years ago
14

You must evaluate a proposal to buy a new milling machine. The base price is $120,000, and shipping and installation costs would

add another $15,000. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $70,000. The applicable depreciation rates are 33%, 45%, 15%, and 7% as discussed in Appendix 12A. The machine would require a S6,000 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $46,000 per year. The marginal tax rate is 35%, and the WACC is 12%. Also, the firm spent $5,000 last year investigating the feasibility of using the machine. ) What is the milling machine's terminal (non-operating) cash flow at the end of year 3?
A. $76,000
B. $54,440
C. $51,500
D. $54,808
Business
1 answer:
Vesnalui [34]3 years ago
5 0

Answer:

Option (D) is correct.

Explanation:

Cost = base price + shipping and installation costs

        = $120,000 + $15,000

        = $135,000

Depreciation Year 1 = 33% × 135000

                                 = 44,550

Depreciation Year 2 = 45% × 135000

                                  = 60,750

Depreciation Year 3 = 15% × 135000

                                  = 20,250

Accumulated Depreciation on machine at the end of year 3 :

= Depreciation Year 1 + Depreciation Year 2 + Depreciation Year 3

= 44,550 + 60,750 + 20,250

= 125,550

Hence Book Value at the end of year 3 = $135,000 - $125,550

                                                                  = $9,450

Sale Value = $70,000

Gain on sale of asset = $70000 - $9450

                                   = $60550

Tax on gain on sale of asset = 35% × 60550

                                                = $21,192.5

Hence, net cash flow from sale of asset = $70,000 - $21,192.5

                                                                   = $48,807.5

Terminal Cash Flow:

= Net Cash flow from sale of asset + net working capital

= $48,807.5 + $6,000

= $54,807.5 or $54,808

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Answer:

$33,630

Explanation:

Given that the company's collection history shows that 43% of credit sales are collected in month of sale and the remainder (57%) is collected in the following month then, in the month of January, Cash collections in January from December credit sales would be equivalent to 57% of December Credit sales. Using the actual figures,

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7 0
2 years ago
On Monday, the regular price of a widget was discounted by 25 percent. On Tuesday, the reduced price was discounted by 50 percen
Anvisha [2.4K]

Answer:

<u>The Regular Price was $112.50</u>

Explanation:

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3 0
2 years ago
One key for sport organizations to use market segmentation effectively involves integrating the strategy with a DBM or CRM syste
Ede4ka [16]

Answer:

TRUE.

Explanation:

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4 0
3 years ago
At the price of $5 per pack of batteries, Duracell sells 10,000 packs of batteries and Energizer sells 15,000 packs of batteries
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Explanation:

To get this answer you have to assume perfect competition scenario, since in this case supply = demand. In this case:

At $7,5

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6 0
2 years ago
What is meant by allocative efficiency? Allocative efficiency is when every good or service A. is produced up to the point where
Alborosie

Answer:

Option (E) is correct.

Explanation:

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Hence, the allocative efficiency is achieved where the difference between these two terms is maximized.

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