Morrison Vans is considering the purchase of a new vehicle to replace an old one. The...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Morrison Vans is considering the purchase of a new vehicle to replace an old one. The old vehicle originally cost $40,000, but has been fully depreciated and now has a current market value and book value of zero. It is estimated that the proposed new vehicle generates efficiencies and savings of $16,000 per year before tax. The new vehicle costs $60,000 delivered and installed, and its economic life is estimated to be ten years with no salvage value. Morrison's cost of capital is 14% (discount rate); depreciation is on a straight-line basis; and the total corporate tax rate is 40%. a. What is the Payback Period for the investment in the new vehicle? b. What is the Net Present Value (NPV) of the investment in the new vehicle? c. What is the Internal Rate of Return (IRR) of the new vehicle? d. What is the Profitability Index (PI) of the investment? Morrison Vans is considering the purchase of a new vehicle to replace an old one. The old vehicle originally cost $40,000, but has been fully depreciated and now has a current market value and book value of zero. It is estimated that the proposed new vehicle generates efficiencies and savings of $16,000 per year before tax. The new vehicle costs $60,000 delivered and installed, and its economic life is estimated to be ten years with no salvage value. Morrison's cost of capital is 14% (discount rate); depreciation is on a straight-line basis; and the total corporate tax rate is 40%. a. What is the Payback Period for the investment in the new vehicle? b. What is the Net Present Value (NPV) of the investment in the new vehicle? c. What is the Internal Rate of Return (IRR) of the new vehicle? d. What is the Profitability Index (PI) of the investment?
Expert Answer:
Related Book For
Corporate Finance A Focused Approach
ISBN: 978-1439078082
4th Edition
Authors: Michael C. Ehrhardt, Eugene F. Brigham
Posted Date:
Students also viewed these finance questions
-
The Chen Company is considering the purchase of a new machine to replace an obsolete one. The machine being used for the operation has both a book value and a market value of zero; it is in good...
-
The Gehr Company is considering the purchase of a new machine tool to replace an obsolete one. The machine being used for the operation has both a book value and a market value of $0; it is in good...
-
An appliance manufacturer is considering the purchase of a new machine for stamping out sheet metal parts. If 0 (given) is the true average of the number of good parts stamped out per hour by their...
-
At its headquarters in Ventura, California, Patagonia's office space feels more like a national park lodge than the main office of a $400 million retailer. It has a Douglas fir staircase and a...
-
Consider a university database for the scheduling of classrooms for final exams. This database could be modeled as the single entity set exam, with attributes course-name, section-number,...
-
The following information is provided for Orbit Antenna Corp., which manufactures two products: Lo-Gain antennas and Hi-Gain antennas for use in remote areas. Orbit Antenna plans to produce 125...
-
State whether you consider the following statements to be true or false: (a) The current cost of plant and machinery is likely to be its net realisable value. (b) A company should distribute...
-
The Miller Corporation acquired 30% of the outstanding common stock of the Crowell Corporation for $160,000 on January 1, 2007 and obtained significant influence. The purchase price of the shares was...
-
Algebra To calculate the height of a tower Mary measures the angle of elevation from a point A, to be 10. She then walks directly towards the tower, and finds the angle of elevation from the new...
-
1. What is your assessment of the financial performance of Nelson Nurseries? 2. Do you agree with Christine Barton?s accounts-payable policy? 3. What explains the erosion of the cash balance? 4. What...
-
An investment promises to pay you $1,000 per year forever with the first payment in 9 years. If alternative investments of similar risk earn 11% per year, determine the maximum you would be willing...
-
Edwina bought a chargeable asset in August 2012 for 240,000, paying acquisition costs of 12,000. In June 2019 she sold a one-quarter interest in the asset for 100,000 and incurred disposal costs of...
-
David was given a chargeable asset in November 2017 at which time the asset had a market value of 7,500. He sold the asset in January 2024. Compute the chargeable gain or the allowable loss if his...
-
Prove that at the azeotropic point, the composition of the vapour and liquid phases are the same.
-
Discuss the significance of liquid-liquid equilibrium in extraction process.
-
What do you mean by depression of freezing point? Discuss van't Hoff's law of freezing point depression of a solution.
-
can you help me answer this question View Options A firm purchased a machine for $80,000 and will depreciate it over its 8 year useful life. If the machine is sold 5 years later for $18,000. The tax...
-
Reread the discussion leading to the result given in (7). Does the matrix sI - A always have an inverse? Discuss.
-
Is there any reason to think that SKI may be holding too much inventory? If so, how would that affect EVA and ROE?
-
The Moore Corporation has operating income (EBIT) of $750,000. The companys depreciation expense is $200,000. Moore is 100% equity financed, and it faces a 40% tax rate. What is the companys net...
-
If the Swiss franc depreciates against the U.S. dollar, can a dollar buy more or fewer Swiss francs as a result?
-
Do you think that people give primarily for altruistic reasons or in order to receive benefits for themselves, including warm feelings, recognition, and social approval? Might the motivations differ...
-
The Corcoran Gallery of Art was established by Washington, DC, businessman William Wilson Corcoran, an early collector of contemporary American art. The gallery was opened in 1874 in a building that...
-
Hull House was founded in Chicago in 1889 by Jane Addams and Ellen Gates Starr, with the purpose of serving Chicago's immigrants and helping the city's poorest citizens improve their lives. Hull...
Study smarter with the SolutionInn App