Question
Use the following information to answer questions #8 through #10. The managers of PonchoParts, Inc. plan to manufacture engine blocks for classic cars from the
Use the following information to answer questions #8 through #10.
The managers of PonchoParts, Inc. plan to manufacture engine blocks for classic cars from the 1960s era. They expect to sell 250 blocks annually for the next 5 years. The necessary foundry and machining equipment will cost a total of $800,000 and will be depreciated on a straight-line basis to zero over the projects life. The firm expects to be able to dispose of the manufacturing equipment for $150,000 at the end of the project. Labor and materials costs total $500 per engine block, fixed costs are $125,000 per year. Assume a 35% tax rate and a 12% discount rate.
What is the expected aftertax salvage value when the equipment is sold in year 5?
a. $ 65,000 b. $ 97,500 c. $100,000 d. $115,000 e. $120,125 9.
What is the annual depreciation tax shield for this project?
a. $ 20,000 b. $ 56,000 c. $100,000 d. $104,000 e. $120,000
What is the minimum bid price the firm should set as a sale price for the blocks if the firm were in a bidding situation?
a. $1,692 b. $1,927 c. $2,382 d. $2,564 e. $2,821
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