The Siclan Company is considering opening a new office. The company owns the building and would...
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The Siclan Company is considering opening a new office. The company owns the building and would sell it for $74,000 after taxes if it does not open the new office. The building has been depreciated down to a zero book value. The equipment that will be used in the building costs $69,000. The equipment that would be used has a 3-year tax life, depreciated straight-line, with 0 scrap value. (If the company tried to sell the equipment at end of year 3, it would receive 0 sales proceeds). (There will be no new revenues after the end of year 3.) No new working capital is required. Cost of Capital = 15% Due to opening the office and using the equipment, additional annual Revenues = $100,000 Additional annual Operating cost, excluding depreciation = $20,000 Tax rate = 30% a. What is the required cash outflow associated with the acquisition of a new machine at t = 0? b. What is the project's NPV? The Siclan Company is considering opening a new office. The company owns the building and would sell it for $74,000 after taxes if it does not open the new office. The building has been depreciated down to a zero book value. The equipment that will be used in the building costs $69,000. The equipment that would be used has a 3-year tax life, depreciated straight-line, with 0 scrap value. (If the company tried to sell the equipment at end of year 3, it would receive 0 sales proceeds). (There will be no new revenues after the end of year 3.) No new working capital is required. Cost of Capital = 15% Due to opening the office and using the equipment, additional annual Revenues = $100,000 Additional annual Operating cost, excluding depreciation = $20,000 Tax rate = 30% a. What is the required cash outflow associated with the acquisition of a new machine at t = 0? b. What is the project's NPV?
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SOLUTION a The required cash outflow associated with the acquisition of the new equipment at t0 is t... View the full answer
Related Book For
Advanced Financial Accounting
ISBN: 978-0137030385
6th edition
Authors: Thomas Beechy, Umashanker Trivedi, Kenneth MacAulay
Posted Date:
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