Question
1. Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $17 million, of which 85% has been depreciated. The
1. Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $17 million, of which 85% has been depreciated. The used equipment can be sold today for $5.1 million, and its tax rate is 30%. What is the equipment's after-tax net salvage value? Write out your answer completely. For example, 2 million should be entered as 2,000,000.
$____
2. Although the Chen Company's milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $41,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $8,400 per year. It would have zero salvage value at the end of its life. The Project cost of capital is 11%, and its marginal tax rate is 35%. Should Chen buy the new machine?
Select-Yes or No and a mini answer on why.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started