A local day spa is considering investing in a machine that costs $60,000. The machine is expected to generate revenues of $25,000 per year for five years. The machine would be depreciated using the straight-line method with no half-year convention over its five year life and have no salvage value. The company considers the impact of income taxes in all of its capital investment decisions. The
company has a 35 percent income tax rate and desires an after-tax rate of return of 14 percent on its investment. The net present value of the machine is:
A) $36,985.
B) $10,207.
C) $25,828.
D) $22,566.
B
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A new manufacturing machine is expected to cost $278,000, have an eight-year life, and a $30,000 salvage value. The machine will yield an annual incremental after-tax income of $35,000 after deducting the straight-line depreciation. Compute the payback period for the purchase.
A. 8.7 years. B. 5.4 years. C. 4.2 years. D. 7.3 years. E. 3.8 years.
What is the concern with the inclusion of fixed-rate mortgage loans in the collateral pool when the liabilities are floating rate?
What will be an ideal response?
Fletcher Corp. is considering the purchase of a new piece of equipment. The equipment will have an initial cost of $400,000, a 5-year life, and a salvage value of $75,000. If the accounting rate of return for the project is 10%, what is the annual increase in net cash flow? Ignore income taxes.
A. $40,000 B. $65,000 C. $25,000 D. $105,000
The coefficient of determination ____________________ for degrees of freedom takes into account the sample size and the number of independent variables when assessing model fit
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