Singular Steel is a small, steel company. The company is evaluating a replacement decision based on...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Singular Steel is a small, steel company. The company is evaluating a replacement decision based on incremental cash-flows. The current machine has a salvage value (e.g. market value) of €3 million. Its current book value is €1.5 million. If not sold, the old machine will require annual maintenance costs of If not sold, the old machine will require annual maintenance costs of €850,000. Depreciation on the old machine is €300,000. At the end of 5 years, it is expected to have a market value of 140,000 and a book value 0. A replacement machine costs €4.8 million now and requires annual maintenance expenditures of €350,000 during its economic life of five years. At the end of project life the new machine will have a market value of €900 000 but its fully depreciated in the books using straight-line method. The corporate tax rate is 20% and the cost of capital is 8%. One can assume that the company can generate profits enough to fully exploit the depreciation tax shields. Evaluate based on NPV and IRR if the company should make the replacement now. Iti s suggested to use Excel to solve the exercise. Moreover, try to find the incremental cash-flows from the replacement (e.g., you should not evaluate the old and new machines separately) Singular Steel is a small, steel company. The company is evaluating a replacement decision based on incremental cash-flows. The current machine has a salvage value (e.g. market value) of €3 million. Its current book value is €1.5 million. If not sold, the old machine will require annual maintenance costs of If not sold, the old machine will require annual maintenance costs of €850,000. Depreciation on the old machine is €300,000. At the end of 5 years, it is expected to have a market value of 140,000 and a book value 0. A replacement machine costs €4.8 million now and requires annual maintenance expenditures of €350,000 during its economic life of five years. At the end of project life the new machine will have a market value of €900 000 but its fully depreciated in the books using straight-line method. The corporate tax rate is 20% and the cost of capital is 8%. One can assume that the company can generate profits enough to fully exploit the depreciation tax shields. Evaluate based on NPV and IRR if the company should make the replacement now. Iti s suggested to use Excel to solve the exercise. Moreover, try to find the incremental cash-flows from the replacement (e.g., you should not evaluate the old and new machines separately)
Expert Answer:
Answer rating: 100% (QA)
To evaluate the replacement decision based on incremental cashflows we need to calculate the net pre... View the full answer
Related Book For
Financial Accounting and Reporting a Global Perspective
ISBN: 978-1408076866
4th edition
Authors: Michel Lebas, Herve Stolowy, Yuan Ding
Posted Date:
Students also viewed these finance questions
-
Williamson, Inc., has a debt-equity ratio of 3. The firm's weighted average cost of capital is 12 percent, and its current cost of equity is 18 percent. Williamson has no preferred stocks in its...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Read the case study "Southwest Airlines," found in Part 2 of your textbook. Review the "Guide to Case Analysis" found on pp. CA1 - CA11 of your textbook. (This guide follows the last case in the...
-
The Unilever Bangladesh Limited has a plant in Narayanganj, manufacturing Dove shampoo made from the ingredient imported from abroad. The company claims that each bottle of 200ml contain on average...
-
A Geiger tube consists of two elements, a long metal cylindrical shell and a long straight metal wire running down its central axis. Model the tube as if both the wire and cylinder are infinitely...
-
Costs are rising for all kinds of medical care. The mean monthly rent at assisted-living facilities was reported to have increased 17% over the last five years to $3,486 (The Wall Street Journal...
-
Why are Man-in-the-Middle (MitM) attacks on the rise? How might companies guard against MitM attacks?
-
Brandlin Company of Anaheim, California, sells parts to a foreign customer on December 1, 2015, with payment of 16,000 korunas to be received on March 1, 2016. Brandlin enters into a forward contract...
-
A firm is considering purchasing or leasing a luxury automobile for the CEO. The vehicle is expected to last 4 years. You can buy the car for $90,000 upfront, or you can lease it for $1,500 per month...
-
Select all that apply Actual output is used for variance calculations because Blank______. Multiple select question. budgeted output although useful for planning is outdated for analyzing performance...
-
Find the work done in winding up a 300-ft cable that weighs 4.00 lb/ft. 45,000 ft-lb 540,000 ft-lb O 2400 ft-lb O None of the other choices 180,000 ft-lb
-
Zudo Furniture produces living room sets in its three factories, and then ships the sets to two depots. Then, these sets are shipped from depots to three stores. The network model of this supply...
-
Job analysis questionnaires typically Question 15 options: a) contain non-job-related questions. b) contain questions regarding previous employment with other companies. c) fall between the two...
-
Watch this video and then answer this question, please. https://youtu.be/17BP9n6g1F0 What was the main problem in this case study and how might it have been better addressed by a systems approach?
-
Compose a thoughtful response to the original post Kyere, Your detailed exploration of how operational-level managers leverage I.T. systems for deciding reorder points is insightful. The focus on...
-
Bookmark question for later Panasonic announced plans to start developing cobalt-free automotive batteries. With certain raw materials being vulnerable to widespread disruption caused by demand...
-
Provide a description of the mobile application you will develop including: 0 The task/s that the mobile application will perform Key features The platform that will be used for the mobile...
-
1-Stern observed all of the following results EXCEPT _______ in his experiment. A-one of the recombinant phenotypes was associated with an X chromosome of normal length B-the number of car, B+ male...
-
Sanofi-Synthelabo and Aventis are two French-based groups, heavily involved in the pharmaceutical business. On 20 August 2004, Sanofi-Synthelabo acquired control of Aventis and the two groups were...
-
Salamah Hijazi, an Egyptian immigrant, founded The Lavender Soap Company (LSC) in Seattle at the end of X1 with a capital at par of $60,000. The business mission of Lavender Soap was to distribute...
-
United Internet, a German Internet service provider, reports in its financial statements for the year ended 31 December 2011 the following simplified balance sheet (Source: Annual report 2011 IFRS)....
-
Explain the difference between dollar-value estimation and hypothesis testing in audit sampling. Which of the two is more common in auditing?
-
Define what is meant by an audit population. What is the importance of an auditor's characteristic of interest when defining an audit population?
-
Identify the relative advantages and disadvantages of probability-proportional-tosize sampling.
Study smarter with the SolutionInn App