Question
The Target Copy Company is contemplating the replacement of its old printing machine with a new model costing $60,000. The old machine, which originally cost
The Target Copy Company is contemplating the replacement of its old printing machine with a new model costing $60,000. The old machine, which originally cost $40,000, has 6 years of expected life remaining and a current book value of $30,000 versus a current market value of $24,000. Target's corporate tax rate is 40 percent. If Target sells the old machine at market value, what is the initial after-tax outlay for the new printing machine?
a. | -$22,180 | |
b. | -$30,000 | |
c. | -$33,600 | |
d. | -$36,000 | |
e. | -$40,000 |
Stanton Inc. is considering the purchase of a new machine which will reduce manufacturing costs by $5,000 annually and increase sales by $6,000 annually. Stanton will use the MACRS method to depreciate the machine, and it expects to sell the machine at the end of its 5-year operating life for $10,000 before taxes. Stanton's marginal tax rate is 40 percent, and it uses a 9 percent cost of capital to evaluate projects of this type. If the machine's cost is $40,000, what is the project's NPV?
a. | $1,014 | |
b. | $2,292 | |
c. | $7,550 | |
d. | $ 817 | |
e. | $5,040 |
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