Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please do D if you could please label everything so I can tell what it is. I posted the question so you could see what

Please do D if you could please label everything so I can tell what it is. I posted the question so you could see what is involed
image text in transcribed
An owner of a large ranch is considering the purchase of a tractor with a front-end loader to clean his corrals instead of hiring workers that do it with a pitch fork. He has given you the following information and has asked you to evaluate this investment. The equipment costs $40,000. The rancher expects that he will save $11,500 a year that is usually paid to workers that clean out the corral by hand. However, he will incur an additional cost of $1,000 for fuel, repairs and maintenance. The rancher plans on keeping the equipment for 3 years before replacing it with a new one. He thinks he can sell the old equipment for $25,000 in three years. The rancher anticipates that his marginal tax rate will be 20 percent over the next three years. The IRS will allow the rancher to depreciate the tractor over seven years using the straight-line method. The rancher requires at least a 15% pretax rate of return on capital (pretax). A. Layout the cash flow for the investment. B. Calculate the net present value (NPV=410) and indicate if the investment is profitable. C. What is the maximum fuel, repairs and maintenance cost that can be paid each year to operate the loader and still find this investment profitable? D. Use Excel to create a table showing the relationship between the NPV and operating expense. Use Excel to graph this relationship. Make sure all axis and lines are labeled correctly. An owner of a large ranch is considering the purchase of a tractor with a front-end loader to clean his corrals instead of hiring workers that do it with a pitch fork. He has given you the following information and has asked you to evaluate this investment. The equipment costs $40,000. The rancher expects that he will save $11,500 a year that is usually paid to workers that clean out the corral by hand. However, he will incur an additional cost of $1,000 for fuel, repairs and maintenance. The rancher plans on keeping the equipment for 3 years before replacing it with a new one. He thinks he can sell the old equipment for $25,000 in three years. The rancher anticipates that his marginal tax rate will be 20 percent over the next three years. The IRS will allow the rancher to depreciate the tractor over seven years using the straight-line method. The rancher requires at least a 15% pretax rate of return on capital (pretax). A. Layout the cash flow for the investment. B. Calculate the net present value (NPV=410) and indicate if the investment is profitable. C. What is the maximum fuel, repairs and maintenance cost that can be paid each year to operate the loader and still find this investment profitable? D. Use Excel to create a table showing the relationship between the NPV and operating expense. Use Excel to graph this relationship. Make sure all axis and lines are labeled correctly

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Take Charge Of Your Money Now Essential Strategies For Winning In Any Financial Climate

Authors: A.J. Monte, Rick Swope

1st Edition

0345517334, 978-0345517333

More Books

Students also viewed these Finance questions

Question

What are the objectives of performance appraisal ?

Answered: 1 week ago

Question

State the uses of job description.

Answered: 1 week ago

Question

Develop skills for building positive relationships.

Answered: 1 week ago

Question

Describe techniques for resolving conflicts.

Answered: 1 week ago

Question

Give feedback effectively and receive it appropriately.

Answered: 1 week ago