Chapter 9

2.

Tubby Toys estimates that its new line of rubber ducks will generate sales of $7.50 million, operating costs of $4.50 million, and a depreciation expense of $1.50 million. If the tax rate is 30%, what is the firm's operating cash flow?(Enter your answer in millions rounded to 2 decimal places.)

Firm Operating cash flows: millions

5.

Gluon Inc. is considering the purchase of a new high pressure glueball. It can purchase the glueball for $40,000 and sell its old low-pressure glueball, which is fully depreciated, for $6,000. The new equipment has a 10-year useful life and will save $10,000 a year in expenses. The opportunity cost of capital is 12%, and the firm's tax rate is 40%. What is the equivalent annual savings from the purchase if Gluon uses straight-line depreciation? Assume the new machine will have no salvage value.(Do not round intermediate calculations. Round your answer to 2 decimal places.)

Equivalent annual savings:

6.

Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $39,000 and will be depreciated according to the 3-year MACRS schedule. It will be sold for scrap metal after 3 years for $9,750. The grill will have no effect on revenues but will save Johnny's $19,500 in energy expenses per year. The tax rate is 30%. Use theMACRS depreciation schedule.

\fTABLE 9.1 Tax denunciation am under the modied wielded cost mum system mm). gures in percent of Recovery Perlod Class \"mi .5191 I M 1 33.33 20.00 14.29 10.00 5.00 3.75 2 44.45 32.110 24.49 18.00 9.50 7.22 3 14.81 19.20 17.49 14.40 8.55 6.68 4 2.41 11.52 12.49 1 1.52 2.20 5.19 5 11.52 5.93 9.22 5.93 5.71 5 5.75 a 92 7.37 523 529 2 3.93 5.55 5.90 4.39 5 4.45 5.55 590 4.52 9 5.55 5.91 4.45 10 5.55 5.90 4.45 I I 3.28 5.91 4.46 12 5.90 4.45 13 5.91 4.45 14 5.90 4.45 15 5.91 4.45 15' 2.95 4.45 12-20 4.45 21 2.23 New: 1. Tax Gupta-mum Is 1011101 In 1119 rst year because assals are assumed to be I1 service fat 6 mm. 2. Real propey 15 depletlated snaighirhne over 27.5 years {or residerllal properly and 39 was 101 nua'leslderliai DW- ' You mighl wand\" why LII: S-yur Isscl class with: a depreciation chalet\" in year: I Lhmugh 6. This is beanie the tax mummies am that Ihe assets an: in service formly amuuhsnfthe myearandmunlhs Billie lastyear.\" lots] pmjem Iii: isyears, hm [hm S-yearliia spans pans off: calendaryears. This assump .] l'lll "ll .] .m I"'i I