One year ago, your company purchased a machine used in manufacturing for $100,000. You have learned that a new machine is available that offers many advantages and that you can purchase it for $160,000 today. The CCA rate applicable to both machines is 30%, neither machine will have any long-term salvage value. You expect that the new machine will produce earnings before interest, taxes, depreciation, and amortization (EBITDA) of $50,000 per year for the next ten years. The current machine is expected to produce EBITDA of $21,000 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Your company's tax rate is 42%, and the opportunity cost of capital for this type of equipment is 10%. Should your company replace its year-old machine? CLIEB What is the NPV of replacement? The NPV of replacement is $ (Round to the nearest dollar) Hudson Bay Properties is considering starting a commercial real estate division. It has prepared the following four-year forecast of free cash flows for this division Year 1 Year 2 Year 3 Year 4 Free cash flow - $142,000 - $14,000 $56,000 $212,000 Assume cash flows after year 4 will grow at 2% per year, forever. If the cost of capital for this division is 16%, what is the continuation value in year 4 for cash flows after year 4? What is the value today of this division? MILE The continuation value is $ (Round to the nearest dollar) One year ago, your company purchased a machine used in manufacturing for $100,000. You have learned that a new machine is available that offers many advantages and that you can purchase it for $160,000 today. The CCA rate applicable to both machines is 30%, neither machine will have any long-term salvage value. You expect that the new machine will produce earnings before interest, taxes, depreciation, and amortization (EBITDA) of $50,000 per year for the next ten years. The current machine is expected to produce EBITDA of $21,000 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Your company's tax rate is 42%, and the opportunity cost of capital for this type of equipment is 10%. Should your company replace its year-old machine? CLIEB What is the NPV of replacement? The NPV of replacement is $ (Round to the nearest dollar) Hudson Bay Properties is considering starting a commercial real estate division. It has prepared the following four-year forecast of free cash flows for this division Year 1 Year 2 Year 3 Year 4 Free cash flow - $142,000 - $14,000 $56,000 $212,000 Assume cash flows after year 4 will grow at 2% per year, forever. If the cost of capital for this division is 16%, what is the continuation value in year 4 for cash flows after year 4? What is the value today of this division? MILE The continuation value is $ (Round to the nearest dollar)
