Nata, Inc., is considering the purchase of a $540,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method. The market value of the computer will be $40,000 in five years. The computer will replace four office employees whose combined annual salaries are $125,000. The machine will also immediately lower the firm’s required net working capital by $60,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 34 percent. Is it worthwhile to buy the computer if the appropriate discount rate is 10 percent?
Answer to relevant QuestionsA firm is considering an investment in a new machine with a price of $11.5 million to replace its existing machine. The current machine has a book value of $3 million, and a market value of $5.2 million. The new machine is ...Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2,800,000. The fixed asset will be depreciated straight-line to zero over its three-year tax ...Suppose we are thinking about replacing an old computer with a new one. The old one cost us $430,000; the new one will cost $465,000. The new machine will be depreciated straight-line to zero over its five-year life. It will ...Assume a firm is considering a new project that requires an initial investment and has equal sales and costs over its life. Will the project reach the accounting, cash, or financial break-even point first? Which will it ...In the previous problem, suppose the scale of the project can be doubled in one year in the sense that twice as many units can be produced and sold. Naturally, expansion would only be desirable if the project were a success. ...
Post your question