Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Philadelphia Fastener Corporation manufactures nails, screws, bolts, and other fasteners. Management is considering a proposal to acquire new material handling equipment. The new equipment has
Philadelphia Fastener Corporation manufactures nails, screws, bolts, and other fasteners. Management is considering a proposal to acquire new material handling equipment. The new equipment has the same capacity as the current equipment but will provide operating efficiencies in tabor and power tage. The savings in operating costs are estimated at $150.000 annually The new equipment will cost $300.000 and will be purchased at the beginning of the year when the project is started. The equipment dealer is certain that the equipment will be operational during the second quarter of the year it is installed. Therefore, 60 percent of the estimated annual savings can be obtained in the first year. The company will incur a one time expense of $30,000 to transfer production activities from the old equipment to the new equipment. No loss of sales will occur, however, because the processing facility is large enough to install the new equipment without interfering with the operations of the current equipment. The equipment is in the MACRS 7 year property class. The firm would depreciate the machinery in accordance with the MACRS depreciation schedule The current equipment has been fully depreciated. Management has reviewed its condition and has concluded that it can be used on additional eight years. The company would receive 510,000, net of removal costs, irit elected to buy the new equipment and dispose of its current equipment at this time. The new equipment will have no salvage value of the end of its life. The company is subject to a 30 percent income tax rate and requires an after tax return of at least 12 percent on any investment Use Appendix A and Exhibit 16:9 for your reference (Use appropriate factor(s) from the tables provided) Required: 1. Calculate the annual incremental after tax cash flows for Philadelphia Fastener Corporation's proposal to acquire the new equipment 2-a. Calculate the net present value of the proposal to acquire the new equipment using the cash flows calculated in requirement Assume all cash flows take place at the end of the yea 2-6. Should management purchase the new equipment? Complete this question by entering your answers in the tabs below tea 2 2 Calculate the annual incremental after-tax cash flows for Philadelphia Fastener Corporation's proposal to acquire the new equipment (Hound your final as to the rest whole dollar Anistration Required: 1. Calculate the annual incremental after-tax cosh flows for Philadelphia Fastener Corporation's proposal to acquire the new equipment 2-a. Calculate the net present value of the proposal to acquire the new equipment using the cash flows calculated in requirement Assume all cash flows take place at the end of the year 2-b. Should management purchase the new equipment? Complete this question by entering your answers in the tabs below. Reg 2A Reg 1 Red 20 Calculate the annual incremental after-tax cash flows for Philadelphia Fastener Corporation is proposal to acquire the new equipment (Round your final anwent to the nearest whole dollar) Annual Operation Year 1 Year 2 Year Year 4 Year 5 Year 5 Year 7 Year Cash operating Songs $ 90.000 $ 150,000 $ 150,00013 150.000 150.000 150,000s 150,000 $ 150,000 Less tax effect Cash wings after tax 3 90.000 $ 150,000 $ 150,000 $ 150,000 $ 150,000 $ 150.000 150,000 $ 150.000 Depreciation tax thield Artax operating cosh flows 5 90.000 150.000 $ 150.000 5 150.000 $ 550.000 $ 150,000 $ 150,000 $ 150.000 Reg 2 > Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 28 Calculate the net present value of the proposal to acquire the new equipment using the cash flows calculated in requirement 1. Assume all cash flows take place at the end of the year. (Round your final answer to a whole dollar amount.) Net pretient value
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered 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