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
anyanavicka [17]
2 years ago
9

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $940,000,

and it would cost another $25,000 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $624,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $19,000. The sprayer would not change revenues, but it is expected to save the firm $301,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%.
Required:
a. What is the Year 0 net cash flow?
b. What are the net operating cash flows in Years 1, 2, 3?
c. What is the additional Year 3- cash flow (i.e. after tax salvage and the return of working capital)?
d. If the project's cost of capital is 12%, should the machine be purchased
Business
1 answer:
Tanya [424]2 years ago
7 0

Answer:

a. Year 0 Net Cash Flows = $984,000

b. We have:

Year 1 net operating cash flows = $306,159

Year 2 net operating cash flows = $332,986

Year 3 net operating cash flows = $261,479

c. Additional Year 3- cash flow = $504,877

d. The machine should be purchased.

Explanation:

We start by first calculating the following:

Initial Investment = Base Price + Modification Cost = $940,000 + $25,000 = $965,000

Useful Life = 3 years

Depreciation in Year 1 = 0.3333 * $965,000 = $321,634.50

Depreciation in Year 2 = 0.4445 * $965,000 = $428,942.50

Depreciation in Year 3 = 0.1481 * $965,000 = $142,916.50

Book Value at the end of Year 3 = $965,000 - $321,634.50 - $428,942.50 - $142,916.50 = $71,506.50

After-tax Salvage Value = Salvage Value - (Salvage Value - Book Value) * Marginal tax rate = $624,000 – ($624,000 - $71,506.50) * 25% = $485,877

Initial Investment in NWC = $19,000

We can now proceed as follows:

a. What is the Year 0 net cash flow?

Year 0 Net Cash Flows = Initial Investment + Initial Investment in NWC = $965,000 + $19,000 = $984,000

b. What are the net operating cash flows in Years 1, 2, 3?

Year 1 net operating cash flows = (Pretax Cost Saving * (1 - tax)) + (tax * Depreciation in year 1) = ($301,000 * (1 – 0.25)) + (0.25 * $321,634.50) = $306,159

Year 2 net operating cash flows = (Pretax Cost Saving * (1 - tax)) + (tax * Depreciation in year 2) = ($301,000 * (1 – 0.25)) + (0.25 * $428,942.50) = $332,986

Year 3 net operating cash flows = (Pretax Cost Saving * (1 - tax)) + (tax * Depreciation in year 3) = ($301,000 * (1 – 0.25)) + (0.25 * $142,916.50) = $261,479

c. What is the additional Year 3- cash flow (i.e. after tax salvage and the return of working capital)?

Additional Year 3- cash flow = NWC recovered + After-tax Salvage Value = $19,000 + $485,877 = $504,877

d. If the project's cost of capital is 12%, should the machine be purchased?

This can be determined from the net present value (NPV) calculated as follows:

NPV = -$984,000 + ($306,159/1.12^1) + ($332,986/1.12^2) + ($261,479/1.12^3) + ($504,877/1.12^3) = $100,287.71

Since the NPV of the machine of $100,287.71 is positive, the machine should be purchased.

You might be interested in
What is a beneficiary?
VikaD [51]
B. The root ben, bien, or bien is essentially latin for good. Therefore the person that receives the good is the beneficiary.
3 0
3 years ago
Read 2 more answers
An example of a risk is _____. <br> taxes <br> insurance<br> an employee injury<br> rent
andre [41]
I believe the answer is: Injury
Risk refers to the danger or negative outcomes that arise when we decided to follow a certain decision.
From the options above, taxes and rent are considered as Obligations rather than a risk.
And insurance is considered as risk management, not the risk itself.
7 0
3 years ago
Mr. &amp; Mrs. Dart own a majority of the outstanding capital stock of Wall Corp., Black Co., and West, Inc. During 2010, Wall a
weqwewe [10]

Answer:

The amount that would be reported as receivables from affiliates is $0.

Explanation:

Here Mr and Mrs Dart owns a majority of shares of Wall corp, Black co, and West inc. In 2010 , wall made advanced cash to black($50,000) and west($80,000) and also west made advance to black($70,000).

While preparing the combined balance sheet for all these company's , any amount of account receivables will not be included because preparing a combined balance sheet is same as making consolidated balance sheet , were any inter company profit or losses , account receivables and payable are not included in the balance sheet , so therefore the amount that would be reported as receivables from affiliates is $0.

7 0
3 years ago
How much money does the founder of Google make a year?
ElenaW [278]
There are actually two makers, and they both agreed to a one dollar salary a year.
8 0
3 years ago
Suppose a country has a national debt of $5,000 billion, a gdp of $20,000 billion, and a budget surplus of $130 billion. how muc
Mrac [35]
<span>a contractionary fiscal policy that will shift the aggregate demand curve to the left by an amount equal to the initial change in investment times the spending multiplier.</span>
6 0
3 years ago
Other questions:
  • To produce espressos, a coffee shop has fixed costs of 200 dollars each day and variable costs of one dollar per espresso. The n
    6·1 answer
  • _____ are the cost of borrowing money.
    7·2 answers
  • At the end of the current year, Accounts Receivable has a balance of $2,150,000; Allowance for Doubtful Accounts has a debit bal
    10·1 answer
  • Identify the examples of interests. Check all that apply
    13·1 answer
  • Which of the following actions has NO impact on your credit score?
    13·1 answer
  • Fatal(focus)_______events caused almost three out of five construction worker deaths
    13·1 answer
  • Adjusting Entries for Accrued SalariesGarcia Realty Co. pays weekly salaries of $26,500 on Friday for a five-day workweek ending
    7·1 answer
  • An investor asks a registered representative to underline the most important facts found in a preliminary prospectus. The regist
    7·1 answer
  • The next dividend payment by Hoffman, Inc., will be $3.10 per share. The dividends are anticipated to maintain a growth rate of
    15·1 answer
  • ________ describes the net present value of the stream of future profits expected over the customer's lifetime purchases.
    13·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!