LaurelsLawnCareLtdhasanewmowerlinethatcangenerate

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4.  Laurel’s Lawn Care, Ltd., has a new mower line that can generate  revenues of $180,000 per year. Direct production costs are $60,000,  and the fixed costs of maintaining the lawn mower factory are $25,000 a
year. The factory originally cost $1.50 million and is being depreciated  for tax purposes over 25 years using straight-line depreciation.  Calculate the operating cash flows of the project if the firm’s tax bracket  is 30%.  (Enter your answer in dollars not in millions.)  
5. Gluon Inc. is considering the purchase of a new high pressure  glueball. It can purchase the glueball for $150,000 and sell its old low- pressure glueball, which is fully depreciated, for $26,000. The new  equipment has a 10-year useful life and will save $34,000 a year in  expenses. The opportunity cost of capital is 11%, and the firm’s tax rate  is 40%. What is the equivalent annual savings from the purchase if  Gluon uses straight-line depreciation? Assume the new machine will  have no salvage value.  (Do not round intermediate calculations. Round your answer to 2 decimal places.)  
Now, compute the net present value of purchasing the new machine.
= –$150,000 + [$26,000 × (1 – 0.40)] + $26,400 × ((1 / 0.11) – {1 / [0.11 = $21,075.73 The last step is to compute the annuity payment that has the same NPV as the new machine purchase. NPV = C × PVIFA r %, t $21,075.73 = C × ((1 / 0.11) – {1 / [0.11(1 + 0.11) 10 ]}) C = $3,578.69 Since the annuity payment is positive, the new machine will produce an annual cash savings of $3,578.6 Calculator computations: Enter 10 11 21,075. 73 N I/ Y PV PM T F V Solve for 3,578. 69 6. Johnny’s Lunches is considering purchasing a new, energy-efficient  grill. The grill will cost $48,000 and will be depreciated according to the  3-year MACRS schedule. It will be sold for scrap metal after 3 years for  $12,000. The grill will have no effect on revenues but will save Johnny’s  $24,000 in energy expenses per year. The tax rate is 30%. Use  the  MACRS depreciation schedule a.  What are the operating cash flows in each year?  (Do not round intermediate calculations. Round your answers to 2 decimal places.) .  

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