The management of Tri-County Air Taxi, Inc. is considering the replacement of an old machine used in

Question:

The management of Tri-County Air Taxi, Inc. is considering the replacement of an old machine used in its helicopter repair facility. It is fully depreciated but it can be used by the through 20x5. If management decides to replace the old machine, James Transportation Company has offered to purchase it for $60,000 on the replacement date. The old machine would have no in 20x5. If the replacement occurs, a new machine would be acquired from Hillcrest Industries on December 31, 20x1.
The purchase price of $1,000,000 for the new machine would be paid in cash at the time of replacement. Due to the increased efficiency of the new machine, estimated annual cash savings of $300,000 would be generated through 20x5, the end of its expected useful life. The new machine is not expected to have any at the end of 20x5. Tri-County's management requires all investments to earn a 12 percent after-tax return. The company's tax rate is 40 percent. The new machine would be classified as three-year property for MACRS purposes.
Required:
1. Compute the of the machine replacement investment.
2. Between which of the following two percentages is the on the machine replacement: 4 percent, 6 percent, 8 percent, 10 percent, 12 percent, and 14 percent?
3. Between what two whole numbers of years is the machine replacement's payback period?
4. How much would the of the new machine have to be on December 31, 20x5, in order to turn the machine replacement into an acceptable investment?
Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Internal Rate of Return
Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...