b should the project be accepted Answers a Year CF PVIF 15t PV 1 25000 0870

B should the project be accepted answers a year cf

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(b)should the project be accepted?Answers:
Level of Difficulty: 3Learning Goal: 3Topic: Net Present Value (Equation 9.1 and Equation 9.1a)
151Gitman •Principles of Finance,Eleventh Edition Degnan Dance Company, Inc., a manufacturer of dance and exercise apparel, is considering replacing an existing piece of equipment with a more sophisticated machine. The following information is given.Table 9.6FactsExisting MachineProposed MachineCost $100,00Cost $150,000Purchased 2 years agoInstallation $20,000Depreciation using MACRS overDepreciation—the MACRSa 5-year recover schedule5-year recovery schedule will be usedCurrent market value $105,000Five year usable life remainingFive year usable life expectedEarnings before Depreciation and TaxesExisting MachineProposed MachineYear1$160,000Year1$170,0002150,0002170,0003140,0003170,0004140,0004170,0005140,0005170,000The firm pays 40 percent taxes on ordinary income and capital gains.3.Given the information in Table 9.6, compute the initial investment.
Level of Difficulty: 4Learning Goal: 3Topic: Initial Investment
Chapter 9Capital Budgeting Techniques152 4. Given the information in Table 9.6, compute the incremental annual cash flows.Answer:Calculation of Operating Cash FlowsYearProfits beforeDepreciationand TaxesDepreciationNet ProfitsbeforeTaxesTaxesNet Profitsafter TaxesCashFlowExisting Machine1$160,000$19,000$141,000$56,400$84,600$103,6002150,00012,000138,00055,20082,80094,8003140,00012,000128,00051,20076,80088,8004140,0005,000135,00054,00081,00086,0005140,0000140,00056,00084,00084,0006000000Proposed Machine1$170,000$34,000$136,000$54,400$81,600$115,6002170,00054,400115,60046,24069,360123,7603170,00032,300137,70055,08082,620114,9204170,00020,400149,60059,84089,760110,1605170,00020,400149,60059,84089,760110,160608,500–8,5003,400–5,1003,400Calculation of Incremental Cash FlowsYearProposed MachineExisting MachineIncremental Cash Flows1$115,600$103,600$12,0002123,76094,80028,9603114,92088,80026,1204110,16086,00024,1605110,16084,00026,16063,40003,400Level of Difficulty: 4Learning Goal: 3Topic: Incremental Operating Cash Flows
153Gitman •Principles of Finance,Eleventh Edition 5.Given the information in Table 9.6, compute the payback period.
Level of Difficulty: 4Learning Goal: 3Topic: Payback Method 6.Given the information in Table 9.6 and 15 percent cost of capital,(a)compute the net present value.(b)Should the project be accepted?Answers:
Level of Difficulty: 4Learning Goal: 3 Topic: Net Present Value (Equation 9.1 and Equation 9.1a)
Chapter 9Capital Budgeting Techniques154 Galaxy Satellite Co. is attempting to select the best group of independent projects competing for the firm’s fixed capital budget of $10,000,000. Any unused portion of this budget will earn less than its 20 percent

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