What the AW of the defender and challenger?? Five years ago, a company in New Je
ID: 2525639 • Letter: W
Question
What the AW of the defender and challenger??
Five years ago, a company in New Jersey installed a diesel-electric unit costing $50,000 at a remote site because no dependable electric power was available from public utility. The company has computed depreciation by the straight-line method with a useful life of 10 years and a zero salvage value. Annual operation and maintenance expenses are $15,000, and property taxes and insurance cost another $3,000 per year. Dependable electric service is now available at an estimated annual cost of $30,000. The company in New Jersey wishes to know whether it would be more economical to dispose of the diesel-electric unit now, when it can be sold for $33,000, or to wait five years when the unit would have to be replaced anyway (with no MV The company has an effective income tax rate of 45% and tries to mit s capital expenditures to oppo unities ha wil eam atleast 99 Or e?nc me taxes. What would you recommend? Click the icon to view the interest and annuity table for discrete compounding when A 9% per year.Explanation / Answer
COMPUTATION OF PRESENT VALUE OF AFTER TAX CASH FLOWS ALTERNATIVE 1 ALTERNATIVE 2 CONTINUE WITH DIESEL ELECTRIC UNIT DISPOSE OF THE UNIT ANNUAL EXPENSES 18000 30000 (15000+3000) DEPRECIATION 5000 0 COST - SALVAGE VALUE/YEARS (50000-0)/10 TOTAL 23000 30000 LESS:TAX 10350 13500 12650 16500 LESS:DEPRECIATION (SINCE CASH EXPENDITURE) 5000 0 AFTER TAX CASH FLOWS 7650 16500 (THESE ARE OUTFLOWS) INITIAL CASH FLOWS 0 29400 (IT IS INFLOW) WORKING SALE VALUE 33000 WRITTEN DOWN VALUE 25000 50000-(5000*5) COST - DEPRCIATION FOR 5 YEARS PROFIT 8000 LESS:TAX@45% 3600 AFTER TAX SALES PROCEEDS 29400 (SALES VALUE - TAX0 NOTE : IT IS ASSUMED THAT TAX IS ATTRACTED FOR SALE OF UNIT IF OTHERWISE THE NET PROCEEDS WILL BE 33000 AND SUBSEQUENT CALCULATIONS ARE CHANGED ACCORDINGLY PRESENT VALUE ANNUITY FACTOR (9%,5)=3.8897 PRESENT VALUE OF AFTER TAX CASH FLOWS 7650*3.8897 16500*3.8897-29400 29756.21 34780.05 SO THE UNIT SHOULD BE CONTINUED BECAUSE CASH OWTFLOWS ARE LESS
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.