Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Hopper Inc. purchased a new machine that had an initial cost of $84,000. The estimated life of the machine is 8 years with no disposal
Hopper Inc. purchased a new machine that had an initial cost of $84,000. The estimated life of the machine is 8 years with no disposal value. If Hopper invests an additional $50,000 at the end of the 8th year, the machine would last an additional 4 years and expected to generate an additional gross margin of $13,500 in years 9-12. Hopper will depreciate the additional investment using straight line depreciation with no residual value, but expects to dispose of the asset with the additional investment for $5,000 at the end of year 12. Required: Assuming a tax rate of 21-percent and an interest rate of 7-percent, determine if extending the life of the machine an additional 4 years is justified by determining the present value of the investment. Be sure to show your work for credit. Annual Contribution Margin Annual Taxes on CM Annual Tax Shield PV of Net cash flow, prior to disposal PV of disposal 3 pts 3 pts 3 pts 3 pts 3 pts
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