Question
PAPA, INC. is considering the purchase of a new machine for $600. This new machine will have a useful life of 10 years, an estimated
PAPA, INC. is considering the purchase of a new machine for $600. This new machine will have a useful life of 10 years, an estimated salvage value of $100 and will be depreciated using the straight-line method. The old machine, which had a cost of $650 has been depreciated for 5 years of its useful life of 15 years and is expected to have a salvage value of $50. It has been depreciated using the straight-line method and could be sold now for $475 (any gain or loss on the sale of the machine is considered to be ordinary income for tax purposes). The companys cost of capital is 10%. The new machine will save PAPA $50 per year in salaries. PAPA, INC.s tax rate is 20%
Required The net present value of the net outlay for the new machine considering the impact of the sale of the old machine (including taxes which would be immediately paid upon the purchase and sale of the machines) is The net present value of the net cash inflows resulting from the purchase of the new machine and the sale of the old machine is The increase or decrease (specify which) in the net income after taxes of PAPA, INC. in the year that the purchase and sale of the machines and all taxes are paid is:
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