1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
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

You might be interested in
What are the three conditions for a market to be perfectly​ competitive? for a market to be perfectly​ competitive, there must b
den301095 [7]
The three conditions that must exist in order for a market to be perfectly competitive include: 1. a large number of vendors and customers (buyers and sellers), 2. the vendors must be selling identical products and finally, 3. new vendors must be able to freely enter the market.
7 0
3 years ago
What are possible red flags or signs of a scam when buying a car?
Olenka [21]
The answer for possible red flags or signs of a scam when buying a car is “D”
4 0
3 years ago
Which type of account will typically have the highest interest rates
anyanavicka [17]
The correct answer is <span>Certificate of Deposit 

</span>
4 0
3 years ago
Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the money she needs. She currently is c
AleksandrR [38]

The correct answer is: "I would recommend her not to increase the price, because with an elastic demand function this will cause a great decrease in the quantity demanded by consumers".

The demand function represents the quantity of a certain good or service that consumers are willing to purchase in the market at different price levels. The law of demand states that there is an inverse relationship between price and quantity demanded (ceteris paribus, hence, given that the rest remains equal). <u>Therefore, when the price charged decreases, the amount that consumers are willing to purchase increases. </u>

In turn, the elasticity of the demand function measures the sensitiveness of the quantity demanded by consumers when there is a certain price change. If the demand function is elastic it means that a price variation would generate an even larger variation (in the inverse direction of course!) in the quantity demanded. <u>This is the case of the lemonade stand therefore the girl should not increase prices because this will not help her to reach her objective quicke</u>r, as she would loss a greater proportion of units sold than the size of the price increase that would have allowed her to earn more per unit.

5 0
3 years ago
Knoll, inc. currently sells 15,000 units a month for $50 each, has variable costs of $20 per unit, and fixed costs of $300,000.
Lunna [17]
Cost per unit
(300,000÷15,000)+20=40

Current profit
50×15,000−40×15,000=150,000

Profit change
60×15,000−40×15,000=300,000

units will knoll need to sell for profit to remain the same as before the price change is
(150,000+300,000)÷40=11,250
3 0
3 years ago
Other questions:
  • Bradshaw Inc. is contemplating a capital investment of $88,000. The cash flows over the project’s four years are: Year Expected
    8·1 answer
  • The subject has $8,000 pool and a $2,000 chimney but no porch. a comparable that sold for $199,000 has a $3,000 porch but no poo
    6·1 answer
  • The costs associated with reengineering machinery and its location within the factory to increase efficiency would be considered
    11·1 answer
  • Suppose an oligopolistic producer assumes its rivals will ignore a price increase but match a price cut. In this case the firm p
    8·1 answer
  • Nusrat took a class where she recently studied the process of acquiring, training, appraising, and compensating employees, while
    10·1 answer
  • Suppose that the demand for picture frames is highly inelastic, and the supply of picture frames is highly elastic. A tax of $1
    11·1 answer
  • Moki Hunt recently purchased Swift Waters Adventures, a kayaking and canoeing rental business near the Salt River in Arizona. Sw
    11·1 answer
  • Marshall Officer is a stockholder in Endrun Investments, which is organized as a C Corporation. Endrun recently lost a major cou
    13·1 answer
  • Ferkil Corporation manufacturers a single product that has a selling price of $25.00 per unit. Fixed expenses total $65,000 per
    10·1 answer
  • Hallie owns 20% of the common stock of the Bean Brothers Coffee Company. The company announced plans to offer an additional 10,0
    6·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!