Use the following information to answer the questions below; Sanad Inc. is considering replacing an existing...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Use the following information to answer the questions below; Sanad Inc. is considering replacing an existing piece of equipment with a more sophisticated machine. The following information is given. Existing Machine Cost = $100,000 Purchased 2 years ago Depreciation using MACRS over a 5-year recover schedule Current market value = $105,000 Five year usable life remaining Earnings before Depreciation and Taxes Existing Machine Year 2 150,000 3 140,000 140,000 Facts Proposed Machine $160,000 Year 1 $170,000 4 5 140,000 Proposed Machine Cost = $150,000 Installation = $20,000 Depreciation-the MACRS 5-year recovery schedule will be used Five year usable life expected 2345 170,000 170,000 170,000 5 170,000 The firm has determined its optimal capital structure, which is composed of the following sources and target market value proportions: Source of Capital Proportions Long-term debt. Preferred Stock Common Stock Target Market 30% 15% 55% Debt: The firm can sell a 20-year, $1,000 par value, 7 percent bond for $990. A flotation cost of 2 percent of the face value would be required in addition to the discount of $10. Preferred Stock: The firm has determined it can issue preferred stock at $65 per share par value. The stock will pay an $8.00 annual dividend. The flotation cost stock is $7 per share. Common Stock: The firm's common stock is currently selling for $50 per share. The dividend expected to be paid at the end of the coming year is $5.07. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $3.45. a new common stock issue must be underpriced at $1 per share and the firm must pay $3 per share in flotation costs. The firm pays 20 percent taxes on ordinary income and capital gains. Sanad invests $7,000 in NWC that will be recovered at the final year of the project. $48,000 existing asset being replaced. ($54,347.2) sale of the existing asset. $50,304 required for the new asset. before depreciation and taxes in year 1. 4 O Calculate the book value of the Calculate the tax effect from the Calculate the initial investment Calculate the incremental earnings Use the following information to answer the questions below; Sanad Inc. is considering replacing an existing piece of equipment with a more sophisticated machine. The following information is given. Existing Machine Cost = $100,000 Purchased 2 years ago Depreciation using MACRS over a 5-year recover schedule Current market value = $105,000 Five year usable life remaining Earnings before Depreciation and Taxes Existing Machine Year 2 150,000 3 140,000 140,000 Facts Proposed Machine $160,000 Year 1 $170,000 4 5 140,000 Proposed Machine Cost = $150,000 Installation = $20,000 Depreciation-the MACRS 5-year recovery schedule will be used Five year usable life expected 2345 170,000 170,000 170,000 5 170,000 The firm has determined its optimal capital structure, which is composed of the following sources and target market value proportions: Source of Capital Proportions Long-term debt. Preferred Stock Common Stock Target Market 30% 15% 55% Debt: The firm can sell a 20-year, $1,000 par value, 7 percent bond for $990. A flotation cost of 2 percent of the face value would be required in addition to the discount of $10. Preferred Stock: The firm has determined it can issue preferred stock at $65 per share par value. The stock will pay an $8.00 annual dividend. The flotation cost stock is $7 per share. Common Stock: The firm's common stock is currently selling for $50 per share. The dividend expected to be paid at the end of the coming year is $5.07. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $3.45. a new common stock issue must be underpriced at $1 per share and the firm must pay $3 per share in flotation costs. The firm pays 20 percent taxes on ordinary income and capital gains. Sanad invests $7,000 in NWC that will be recovered at the final year of the project. $48,000 existing asset being replaced. ($54,347.2) sale of the existing asset. $50,304 required for the new asset. before depreciation and taxes in year 1. 4 O Calculate the book value of the Calculate the tax effect from the Calculate the initial investment Calculate the incremental earnings
Expert Answer:
Answer rating: 100% (QA)
i 5 year MACRS schedule depreciates the asset by 20 32 1920 1152 1152 a... View the full answer
Related Book For
Intermediate Accounting
ISBN: 978-0324592375
17th Edition
Authors: James D. Stice, Earl K. Stice, Fred Skousen
Posted Date:
Students also viewed these accounting questions
-
Use the following information to answer the questions listed below: Dividends declared and paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,000 Cash from investing...
-
Use the following information to answer the questions below. Assume that the capital account is equal to 0. Net unilateral transfers .. 50 Exports of goods and services ..500 Net increase in the U.S....
-
Use the following information to answer the questions below: Manufacturing: Sales revenue = PM QM = 150 Payments to labor = W LM = 100 Payments to capital = RK K = 50 Agriculture: Sales revenue =...
-
In Exercises verify the identity. coshx = 1 + cosh 2x 2
-
Suppose four gas molecules are placed in the left flask in Figure 19.6(a). Initially, the right flask is evacuated and the stopcock is closed. (a) After the stopcock is opened, how many different...
-
A 130-lb wrecking ball B is attached to a 45-ft-long steel cable AB and swings in the vertical arc shown. Determine the tension in the cable (a) At the top C of the swing, (b) At the bottom D of the...
-
Provide examples of simple and complex requirements.
-
A bank manager of City savings bank Inc. uses the managerial accounting system to track the costs of operating the various departments with in the bank. The departments include Cash Management,...
-
Suppose that the input is 10 30 16 25 76 -1. What is the output of the following code? int num = 0; int sum; int count = 0; cin >> sum; while (count < 3) { } cin >> num; sum sum + num; count++; "...
-
1. Why did Tiffany become a takeover target? 2. Acquisitions are one tool to execute corporate strategy. Why did LVMH acquire Tiffany? In your answer, focus on product and geographic diversification....
-
Evaluate the recent example of sign-stealing in MLB and the penalties issued by the league commissioner, Rob Manfred, to the Houston Astros organization. Was this a good use of the commissioner's...
-
When a band plays at the main stage of a 1,100-person festival, they sell 21 T-shirts. Their next festival gig involves playing on the main stage at a 2,900-person festival. How many T- shirts do...
-
An amount of AED 24900 is deposited to a savings account for 50 weeks at a simple interest rate of 3.1% per annum. How much interest did your money earn at the end of the period
-
A solo artist performing as one of several acts has exactly one hour to be on stage. It takes him an average of 5 minutes, 10 seconds per song played, as well as a total of 10 minutes to do other...
-
A beverage producer needs to minimize shipping costs from its two primary plants in Hamilton and Waterloo. All wholesale orders within the city are shipped from one of these plants. An outlet in...
-
An accountant and a bookkeeper, as part of a contract dissolving their accounting business, agreed that each would contribute $100,000 to fund an annuity for a clerk who was a longtime employee of...
-
Paris and Tristan are married and file jointly. Assume that Paris and Tristan's taxable income is $200,000, including $7,200 of net long-term capital gain. Also assume that their employers withheld...
-
Explain the differences and similarities between fringe benefits and salary as forms of compensation.
-
The company miscounted its inventory at the end of the year. The correct amount of inventory was $100,000. The error was not discovered until the following May when the books for the preceding year...
-
The following information relates to a capital lease between Bradford Electric Co. (lessee) and Widstoe Manufacturing Inc. (lessor). The lease term began on January 1, 2011. Widstoe recorded the...
-
Fugate Energy Corp. has recently purchased a small local company, Gleave Inc., for $556,950 cash. Fugates chief accountant has been given the assignment of preparing the journal entry to record the...
-
A typical muscle fiber is 2.0 cm long and has a cross-section area of 3.1 10-9 m 2 . When the muscle fiber is stimulated, it pulls with a force of 1.2 mN. What is the work done by the muscle fiber...
-
You are pulling a child in a wagon. The rope handle is inclined upward at a 60 angle. The tension in the handle is 20 N. How much work do you do if you pull the wagon 100 m at a constant speed?
-
A wind turbine works by slowing the air that passes its blades and converting much of the extracted kinetic energy to electric energy. A large wind turbine has 45-m-radius blades. In typical...
Study smarter with the SolutionInn App