Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Computer Disk Duplicators, Inc. has been considering several capital investment proposals for the year beginning in 2019. For each investment proposal, the relevant cash flows

Computer Disk Duplicators, Inc. has been considering several capital investment proposals for the year beginning in 2019. For each investment proposal, the relevant cash flows and other relevant financial data are summarized in the table below. New assets will be depreciated under the MACRS system rather than being fully expensed right away. In the case of a replacement decision, the total installed cost of the equipment will be partially offset by the sale of existing equipment. The firm is subject to a 40 percent tax rate on ordinary income and on long-term capital gains. The firm's cost of capital is 15 percent. For Proposal 3, the incremental depreciation expense for year 3 is ________. (See Table 11.2)

A=%50850

B=$21100

C=$42000

D=$47850

image text in transcribed

Proposal Type of Capital 1 2 Budgeting Decision Expansion Replacement Mutually Exclusive Type of Project Independent with 3 Cost of new asset $1,500,000 $200,000 Installation costs $0 $0 MACRS (new asset) 10 years 5 years Original cost of old asset N/A $80,000 Purchase date (old asset) N/A 1/1/2015 Sale proceeds (old asset) N/A $50,000 MACRS (old asset) N/A / Annual net profits before depreciation & taxes (old) N/A $30,000 Annual net profits before depreciation & taxes (new) $250,000 $100,000 3 Replacement Mutually Exclusive with 2 $300,000 $15,000 5 years $100,000 1/1/2018 $120,000 5 years 5 years $25,000 $175,000 Proposal Type of Capital 1 2 Budgeting Decision Expansion Replacement Mutually Exclusive Type of Project Independent with 3 Cost of new asset $1,500,000 $200,000 Installation costs $0 $0 MACRS (new asset) 10 years 5 years Original cost of old asset N/A $80,000 Purchase date (old asset) N/A 1/1/2015 Sale proceeds (old asset) N/A $50,000 MACRS (old asset) N/A / Annual net profits before depreciation & taxes (old) N/A $30,000 Annual net profits before depreciation & taxes (new) $250,000 $100,000 3 Replacement Mutually Exclusive with 2 $300,000 $15,000 5 years $100,000 1/1/2018 $120,000 5 years 5 years $25,000 $175,000

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Options Futures And Other Derivatives

Authors: John C. Hull

3rd Edition

0131864793, 9780306457555

More Books

Students also viewed these Finance questions

Question

Accept responsibility whenever it is offered.? LO857

Answered: 1 week ago

Question

Discuss the goals of financial management.

Answered: 1 week ago

Question

Understand the department managers key role in employee retention

Answered: 1 week ago