Please anawer the questions1,2,3
12-812-56 Sensitivity Analysis: Equipment-Replacement Decision The Mendoza Company discu in the chapter is now considering replacing a piece of equipment that the company uses to mo the integrity of metal pipes used for deep-sea drilling purposes. The company's pretax WACC) count rate) is estimated as 10%. The following data are pertinent to the question you've been a to analyze: Existing Asset Replacement (?) Annual (pretax) variable operating expenses Current purchase price Current salvage value of existing asset Current book value of existing asset Expected useful life lyears) Expected salvage value, end of year 6 $200,000 N/A $40,000 $60,000 6 $10,000 $500,000 N/A N/A 6 $100,000 Required 1. What is the maximum amount of annual variable operating expenses, pretax, that would make this a attractive investment from a present-value standpoint? In answering this question, use the appropriat PV factor(s) from Appendix C. Table 1 and the appropriate PV annuity factor from Appendix C, Table 1 Round your answer to the nearest whole dollar. 2. Assume now that the company expects over the coming 6 years, to be subject to a combined inconx tax rute of 35%, including any gain/loss realized on the sale of the existing equipment. Assume that the current net book value of the existing asset is $60,000 and that the after-tax WACC (discount rate) for Mendoza is 8.0%. Finally, assume that the company will use straight-line depreciation, with no salvage value, for income tax purposes. In this situation, what is the maximum amount of variable operating costs (on both a pretax and on an after-tax basis) that can be incurred in order to make the proposed purchase attractive in a present-value sense? In answering this question, use the appropriate PV annuity factor from Appendix C Table 2. Round both answers to the nearest whole dollar. 3. What strategic considerations might affect the decision whether to invest in this new equipment? 12:57 Present Value Analysis: Sensitivity Analysis: Spreadsheet Application Because increased consumer demand for fuel-efficient, alternative energy automobil Company is considering investing in a new hybrid for a 2-year period for this nu in your answer to 2 decimal places. What percentage places) does this represent? 9. What strategic considerations and other factors might bear on this investment decision? How can such considerations be dealt with formally in the planning and decision-making process? --5, 12-8) 12-36 Sensitivity Analysis; Equipment-Replacement Decision The Mendoza Company discussed in the chapter is now considering replacing a piece of equipment that the company uses to monitor the integrity of metal pipes used for deep-sea drilling purposes. The company's pretax WACC (dis count rate) is estimated as 10%. The following data are pertinent to the question you've been asked to analyze Annual (pretax) variable operating expenses Current purchase price Current salvage value of existing asset Current book value of existing asset Expected useful life (years) Expected salvage value, end of year 6 Existing Asset $200,000 N/A $40,000 $60,000 6 $10,000 Replacement (?) $500,000 N/A 6 $100,000 Required 1. What is the maximum amount of annual variable operating expenses, pretax, that would make this an attractive investment from a present-value standpoint? In answering this question, use the appropriate PV factor(s) from Appendix C, Table 1 and the appropriate PV annuity factor from Appendix C, Table 2. Round your answer to the nearest whole dollar 2. Assume now that the company expects over the coming 6 years, to be subject to a combined income tax rate of 35%, including any gain/loss realized on the sale of the existing equipment. Assume that the current net book value of the existing asset is $60.000 and that the after-tax WACC (discount rate) for Mendoza is 8.0%. Finally, assume that the company will use straight-line depreciation, with no salvage value, for income tax purposes. In this situation, what is the maximum amount of variable operating costs on both a pretax and on an after-tax basis) that can be incurred in order to make the proposed purchase attractive in a present-value sense? In answering this question, use the appropriate PV annuity factor from Appendix C. Table 2. Round both answers to the nearest whole dollar. 3. What strategic considerations might affect the decision whether to invest in this new equipment? 2-4, 12-5] 12-57 Present Value Analysis: Sensithihi
