Project 3 Carolina Company, Inc. is considering purchasing a new gluing machine. The gluing machine costs $50,000 and requires installation costs of $2,500. The sale of an existing gluer would partially offset this outlay. The existing gluer originally cost $10,000 and is four years old. It is being depreciated under MACRS using a five-year recovery schedule and can currently be sold for $15,000. The existing gluer has a remaining useful life of five years. If held until year 5, the existing machine's market value would be zero. Over its five-year life, the new machine should reduce operating costs (excluding depreciation) by $17,000 per year. Training costs of employees who will operate the new machine will be a one-time cost of $5,000 which should be included in the initial outlay. The new machine will be depreciated under MACRS using a five-year recovery period. The firm has a 12 percent cost of capital and a 40 percent tax on ordinary income and capital gains. Project 3 Questions: 1) The payback period for the project is ________. 2) The tax effect of the sale of the existing asset is ________. 3) The initial outlay for this project is ________. 4) The present value of the project's annual cash flows is ________. 5) The net present value of the project is ________. 6) The internal rate of return for the project is ________.
Project 3
Carolina Company, Inc. is considering purchasing a new gluing machine. The gluing machine costs $50,000 and requires installation costs of $2,500. The sale of an existing gluer would partially offset this outlay. The existing gluer originally cost $10,000 and is four years old. It is being depreciated under MACRS using a five-year recovery schedule and can currently be sold for $15,000. The existing gluer has a remaining useful life of five years. If held until year 5, the existing machine's market value would be zero. Over its five-year life, the new machine should reduce operating costs (excluding depreciation) by $17,000 per year. Training costs of employees who will operate the new machine will be a one-time cost of $5,000 which should be included in the initial outlay. The new machine will be depreciated under MACRS using a five-year recovery period. The firm has a 12 percent cost of capital and a 40 percent tax on ordinary income and
Project 3 Questions:
1) The payback period for the project is ________.
2) The tax effect of the sale of the existing asset is ________.
3) The initial outlay for this project is ________.
4) The present value of the project's annual cash flows is ________.
5) The
6) The
Step by step
Solved in 2 steps with 2 images
