CMA（P2）——Investment Decision
信息来源：金融范 2014-10-15 10:13 knroman
| |
Existing machine |
New machine |
| Original cost |
$50,000 |
$90,000 |
| Installation cost |
$0 |
$4,000 |
| Freight and insurance |
$0 |
$6,000 |
| Expected end salvage value |
$0 |
$0 |
| Depreciation method |
straight-line |
straight-line |
| Expected useful life |
10 years |
5 years |
The existing machine has been in service for seven years and could be sold currently for $25,000. If the new machine is purchased Calvin expects to realize a $30,000 before-tax annual reduction in labor costs.
If the new machine is purchased, what is the net amount of the initial cash outflow at Time 0 for net present value calculation purposes?
A. $65,000.
B. $75,000.
C. $79,000.
D. $100,000.
D.1.5. Verla Industries is trying to decide which one of the following two options to pursue. Either option will take effect on January 1st of the next year.
Option One - Acquire a New Finishing Machine.
The cost of the machine is $1,000,000 and will have a useful life of five years. Net pretax cash flows arising from savings in labor costs will amount to $100,000 per year for five years. Depreciation expense will be calculated using the straight-line method for both financial and tax reporting purposes. As an incentive to purchase, Verla will receive a trade-in allowance of $50,000 on their current fully depreciated finishing machine.
Option Two - Outsource the Finishing Work.
Verla can outsource the work to LM Inc. at a cost of $200,000 per year for five years. If they outsource, Verla will scrap their current fully depreciated finishing machine. Verla’s effective income tax rate is 40%. The weighted-average cost of capital is 10%.
When comparing the two options, the $50,000 trade-in allowance would be considered
A. irrelevant because it does not affect taxes.
B. relevant because it is a decrease in cash outflow.
C. irrelevant because it does not affect cash.
D. relevant because it is an increase in cash outflows.
D.4.1. Two mutually exclusive capital expenditure projects have the following characteristics
关键词:
Investment Decision